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Consumers Feel the Pinch as Warsh’s Fed Stays Quiet

October 15, 2026

Video Transcript

JD Durkin: He’s a friend of ours. He’s a friend of mine. But he’s a man with a new title. Come on in here, Greg. Now he’s head of macro strategy at South Street Securities. Come on in, brother.

Greg Faranello: Nice to see you, dude.

JD Durkin: Congratulations on the new title.

Greg Faranello: Thank you very much.

JD Durkin: Great to have you. K-shaped economy: do you see it getting worse? Higher energy prices hitting lower-income Americans, kind of telling what we saw in CPI yesterday and PPI this morning.

Greg Faranello: Exactly right. And we say this all the time, the K shape. You can actually make an argument that what’s going on in AI right now is hitting the upper end too. But on the bottom end, if you look at retail sales today, if you look at the headline numbers, they were higher than expected. If you look at the control group, which is real retail sales, stripping out all the noise, it was worse than expected. So it’s pretty clear right now that people are getting pinched.

JD Durkin: Markets pricing in more interest rate hikes. We saw the odds of an October interest rate hike go up a little bit after the CPI print yesterday. How much higher could rates go right now? That current Fed target range, 3.75% to 4%. Is it going higher, you think, Greg?

Greg Faranello: So we’re back to the ’90s. We’re back to the briefcase. New Fed Chair Kevin Warsh doesn’t want to give much communication. That day, when the inflation numbers came out, the volatility in fed funds futures was amazing. Now we’ve got a small percentage priced in for this next meeting. We don’t think they go at this next meeting, but the market is pricing in a higher probability that they potentially go in December. But there’s a lot of time between now and December, so we really don’t know.

JD Durkin: Kevin Warsh, not a fan of forward-looking guidance. He made that very clear when he took over the role a few months ago. How are investors really supposed to read the tea leaves, trying to figure out the Fed signals, knowing that that is the approach from the new Fed chairman?

Greg Faranello: Well, the Fed signaling, signaling is the key word, came from Fed Governor Chris Waller. So the question is, new Fed Chair Kevin Warsh, he’s going to stay the course. Who are the lieutenants who are going to be out there that move the markets over time? It was Chris Waller under Chair Powell for a while. Now we have New York Fed President Williams. He’s saying one more rate hike this year, none for next year. You have Vice Chair Jefferson as well.

And you have Fed Governor Waller at the same time saying it’s signaling. We can say signaling. We’re not going to tell you exactly what we’re going to do. But if we see the fed funds rate 50 or 75 basis points higher in time, we’re not going to tell you exactly what meeting that’s going to happen at. In other words, we’re not going to tell you we’re going to tighten three meetings in a row.

JD Durkin: I wonder your take on oil pressure, broader pressure for the indexes and the equities system here as the conflict in the Middle East continues. How much longer do you think the economy can hold up with that uncertainty surrounding that timeline?

Greg Faranello: Probably not much longer. I mean, the key is the job market. I mean, if you look at the buckets right now, you’ve got the Fed, you’ve got interest rates, you’ve got the Middle East, which is key. You’ve got AI, which is a complete bucket in and of itself. And then, you know, you’ve got the Fed and what they’re going to do moving forward. I think if you look at those four key risk factors right now, the biggest one, in our view at least, is the Middle East. If we can clear that up a little bit through the end of this year into next year, I think we can see an alleviation. The labor market holds up and the economy holds up. But right now there’s definitely tension in the economy.

JD Durkin: Greg Faranello, head of macro strategy at South Street Securities. My man, congratulations on the new title, and thanks for kicking off the broadcast today.

Greg Faranello: Thank you very much.

JD Durkin: We’ll talk to you again soon.

Higher energy prices are adding pressure on lower-income Americans as hot inflation data and weaker underlying retail sales point to a widening K-shaped economy. JD Durkin speaks with Greg Faranello, head of macro strategy at South Street Securities, about consumer strain, the outlook for Fed rate hikes, and how investors can read the Fed under Chair Kevin Warsh.

Faranello says that while headline retail sales came in higher than expected, the control group, which strips out the noise, was worse than expected, making it clear that people are getting pinched. He adds that AI may be affecting the upper end of the K-shaped economy as well. On the Fed, he says markets are back to the ’90s, with Warsh offering little communication, and notes that fed funds futures saw significant volatility after the inflation data. He does not expect a rate hike at the next meeting, though markets are pricing in a higher probability of a move in December.

With Warsh avoiding forward guidance, Faranello says investors should watch Fed officials who signal policy, including New York Fed President Williams, who has said one more rate hike this year and none next year, along with Vice Chair Jefferson and Governor Chris Waller. He says the economy probably cannot hold up much longer under current pressures, pointing to the Fed, interest rates, AI, and the Middle East as key risk factors, with the Middle East the biggest. If that conflict clears up through the end of this year and into next, he believes the labor market and the economy can hold up.

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