JD Durkin: Let’s bring in Davis Busch, Chief Investment Officer at Trajan Wealth, for his take on today’s tape, what we heard from Kevin Warsh and where we go from here. Happy Fed Day, brother.
Davis Busch: Happy Fed Day. Thank you for having me back.
JD Durkin: Twelve-nothing. Unanimous vote. We’re so used to talking about these dissents. Not a lot of dissents today. They’re all on the same page. What did you make of what we heard from the chairman?
Davis Busch: Yeah, essentially what we’re faced with is persistent inflation. Inflation remains elevated. Meanwhile, the economy is still growing. But we also have these geopolitical concerns that’s causing the inflation, so higher energy prices and so on.
And so really today was about credibility with the Fed. So the Fed is showing that they’re willing to combat inflation to the best of their ability with the tools that they have at their disposal.
JD Durkin: Talk to me a bit more about how you are thinking of geopolitics, obviously around the world and what that’s doing for the oil benchmarks. We got a little bit of reprieve here for West Texas and Brent today.
But it’s not just geopolitics around the world. It’s politics here at home. Forty-six days out from the midterm November elections. How are you thinking about all these things with regards to investor sentiment?
Davis Busch: Yeah, really right now, inflation is really being driven by the geopolitical risks that are associated with the conflict in Iran. So that’s part of it, as well as the trade wars and tariffs.
And so these are all things that the Fed can’t control. And so really the only thing the Fed can do is raise rates and pull in demand destruction. So, in other words, pull demand down. But they can’t do anything about, you know, what’s causing the inflation right now.
JD Durkin: Yeah. Ultimately, were you surprised with the decision that we heard? Not just that we’re back up for the first time in over three years to a rate-hiking cycle, but that it was 12-nothing?
Davis Busch: No, I’m not surprised at all. I mean, market probabilities were that the Fed was going to raise rates. Kevin Warsh came out with a very hawkish tone.
And look, inflation remains elevated. So this is really about credibility, and it’s signaling to the bond market that the Fed is willing to fight inflation. And I think that’s why we saw an initial rally and yields come down slightly at the 10- and 30-year part of the curve. Meanwhile, the front end came up.
So that tells me that bond investors are watching that inflation premium closely.
JD Durkin: What do we do? We’ve got two meetings left, one for October, one for December. We also had a dot plot summary today. The dot plot from the Fed is not frequently—it very rarely matches up with the eventual reality—but it seems like firmly on the table the possibility that this will not be the only interest rate hike of 2026.
Davis Busch: Yeah, right now, both with the dot plot and Fed probabilities, there’s a likelihood that the Fed is going to raise rates again in December and potentially again in Q1 of next year.
Now, we’ll have to wait and see if that plays out, but it’s going to be really heavily dependent on inflationary pressures.
JD Durkin: Yeah. Ultimately, if we only sold off four-tenths of a percent, this likelihood of this eventuality was probably priced into the markets today.
Overall, what could derail the overall market momentum? We’re not quite at all-time highs, but we’re not very far off.
Davis Busch: Right. And really what we’re coming down to is that, you know, equity valuations are at a level where the bears have an argument that discount rates are higher, and so equity valuations should be lower.
But bulls think, you know, earnings are really supporting the equity markets right now. So earnings are going to be the real driver of equity returns over the remainder of this quarter, as well as into the next year.
JD Durkin: All right. Before I let you go, and I’m always grateful for your time, one overall story of these markets, the economy, what you saw from the Fed, something you’re thinking a lot about that the rest of us should be paying a little bit more attention to?
Davis Busch: Yeah, really, I’m thinking about those companies that are most vulnerable to higher-for-longer rates. And so that’s where small- and mid-caps may not perform as well because they’re more reliant on leverage and refinancing that leverage into higher rates.
So I would be mindful in watching those earnings and those margins compress due to higher and higher-for-longer rates.
JD Durkin: Yeah, even though, of course, the Russell 2000, huge outperformance here in 2026 relative to the S&P and some of the other benchmarks as well.
Davis Busch, friend of the show, Chief Investment Officer at Trajan Wealth. My man, come back anytime. Crushing it, as always.
