JD Durkin: To bring in our first guest, say hello to Chip Hughey. He is Managing Director and Head of Fixed Income at Truist Wealth. Nice to see you. I appreciate your time here today.
I mean, really, we’ll start anyway, but let’s start. Today obviously kicks off the first of a two-day policy meeting, right? FOMC, all eyes tomorrow on Kevin Warsh. Your expectation for what is top of mind for voting Fed officials, especially on this backdrop?
Chip Hughey: That’s right. Yeah, I mean, I think it’s going to be a very, very close call. And we’ve been in the camp that the Fed was going to be on hold for some time. We thought that way in July when probability was picking up for a hike. That obviously did not materialize, right? They were still on hold.
Things started to change over the past six to eight weeks, starting with, I think, really Fed Chairman Warsh’s comments at the Jackson Hole Symposium that the focus, the emphasis, is going to be on inflation, you know, from here on out.
We had a really solid August labor report, and then we had, again, you know, a hotter-than-expected core CPI report on Friday. I think that tipped the scales. We do think that the Fed will move forward with a 25-basis-point hike tomorrow.
JD Durkin: Okay. Tell me what changes the calculus here for the Fed. It’s amazing to me here, Chip. We came into 2026, I don’t know how many people said interest rate hikes were necessarily in their forecast, yet here we are. That narrative has really shifted.
What changes things for the Fed? Maybe not between today and tomorrow, but between now, with two remaining FOMC meetings after tomorrow?
Chip Hughey: Yeah, absolutely. It’s the big question. I think the big thing to watch is inflation. I do think that this Fed is very data-dependent going forward.
And so if we can get into an environment where we get into some cooler inflation readings, I think that the Fed would be looking to hold and not necessarily be restarting a really aggressive rate-hike cycle.
But I think in this environment as it stands today, you mentioned the backdrop where we stand today with inflation and where we saw oil prices are continuing to go and applying that potential inflationary pressure, we think they move forward for this one, but are going to be data-dependent going forward.
JD Durkin: Let me ask you, get your take more broadly here on yields. Not necessarily what happened today, but really, I mean, we can zero in on that part of the yield curve for the 10-year specifically, a 19-year high. You’ve got to go all the way back to 2007. That’s just about a multi-decade high.
Chip Hughey: That’s right.
JD Durkin: What do you make of what the bond market is trying to communicate on a backdrop like this?
Chip Hughey: Yeah, I think there’s—you can slice and dice the yield curve in a lot of different ways. I think the front of the yield curve is saying that the risks are that the Fed does have more to do, that they potentially could have to continue to tighten policy. I think it’s going to be more data-dependent than that, but I think that’s what the front end is telling you.
Longer, I think that you’re seeing the inflationary pressure sort of playing out in longer yields. And I think that we are seeing some concerns on the fiscal sustainability front.
I do think the market is expressing some concern about the debt supply that is out there, the government debt supply, and also the ongoing deficits that we’re dealing with. So I think that is also being expressed in that upward yield trajectory.
But I would say, too, that it presents an opportunity for investors, to your point about how high these yields are relative to the past two decades. So, a big opportunity to capture some of this income for investors.
JD Durkin: Yeah, of course. I’ve only got a few moments left. Quickly, if possible, for investors sitting on cash or looking for that move, what is top of mind for you they might benefit from paying attention to?
Chip Hughey: I think it’s notable that those yields in the front end of the yield curve have moved up above policy rates. So because of that already, there’s already compensation there for anticipated moves from the Fed, whether they materialize or not.
So I do think that there is an opportunity to complement those cash balances, especially if they’re particularly heavy, to deploy cash into the front end of the yield curve.
JD Durkin: Chip Hughey, Managing Director and Head of Fixed Income at Truist Wealth. By the way, is this your first time on the show?
Chip Hughey: I believe this is the first time.
JD Durkin: Dude, you absolutely crushed it. I promise you, it will not be your last. Come back and do it anytime.
Chip Hughey: Good.
