Weekly Economic Update: September 29th, 2026

Yields scream “enough!”

Bond markets finally lost patience with the goings-on in Iran and the progress (or lack thereof) on inflation.¹ The Iran situation has been smoldering all summer, with plenty of finger-pointing, rhetoric, counter-rhetoric, threats and counterthreats. The immediate and most direct economic and market impact resulting from this stalemate has been the steady upward movement of the price of oil.

By mid-September, West Texas Intermediate (WTI) had topped $105 per barrel.² Diesel fuel and gas prices spiked, inflation calcified in the mid-3.5% range (as measured by the consumer price index or CPI), and expectations were for inflation not only to remain elevated but to accelerate.³ Add to that a massive and methodically increasing national debt thanks to the government’s inability to balance the budget, and we got a predictable response from the bond market.

Yields spiked above the psychologically significant 5% level on the U.S. 10-year Treasury note last week, leading to a sell-off in equities.⁴ Small-cap equities, which tend to react negatively to rising rates, lost nearly 2% over the past two weeks but are still outpacing the S&P 500 so far this year.⁵

Despite the efforts of the Treasury to lower rates, the bond market knows better. Think of it this way: If you’re burdened by a large amount of personal debt, do you think you’ll be able to get a better rate if you want to borrow more? It’s the same with our $40 trillion in national debt.⁶

If that wasn’t bad enough, higher and stubborn inflation is making people jittery about buying bonds unless they get higher rates. When that happens, older bonds in a portfolio that offer less income (because of their lower yields) lose value. (Remember, bond prices fall when yields rise.) The bond market is losing patience and saying something pretty straightforward: Get inflation under control by ending the Iran conflict and lowering energy prices.

The U.S. needs to get its fiscal house in order or else. Let’s hope we don’t have to learn the hard way what the “or else” might be. It also might not be a great time to take on a mortgage, as the 30-year fixed rate climbed above 7% to its highest level since January 2025.⁷ But right now might not be a bad time to invest in a two- or three-year U.S. Treasury, since those are yielding close to 5% if you’re willing to hold it until it matures.⁸

While all of this weighed on markets last week, we did see a bit of a bounce on Friday with investors buying into recently beaten-down AI stocks and on renewed hopes of the Strait of Hormuz opening back up.

What’s next for the Fed?

Now that the Federal Reserve has raised rates for the first time since July 2023, what happens next? Is this the start of a rate-increasing cycle? If it is, are we in trouble?

Gross domestic product (GDP) is running at +1.5% and needs to be closer to 2.5% to 3% for healthy growth.⁹ Raising rates with GDP at such anemic levels might put the economy at risk of recession. From that standpoint, it appears the Fed should be stimulating the economy by raising rates.

Then we have inflation running at closer to twice the Fed’s target rate (3.4% versus 2%), so that would argue for rate hikes. But we’re told the increased inflation is due to higher oil prices because of the Iran conflict. By that logic, inflation can turn on a dime — so what difference will 25 or even 100 basis points in rate hikes make?

What can the Fed really do? Treasury Secretary Scott Bessent thinks there is a dislocation with rates and is trying to address that, but he’s trying to lower rates, which again might help economic growth but won’t help lower oil prices or inflation.

The yield curve is pretty flat, with only about 1% more yield as an incentive to go out from one year to 30 years. Think about that: You would get 1% more yield to tie your money up for an additional 29 years. That’s pretty unbelievable, and if the Fed only has influence on the short end of the curve (for maturities of three years or less), it will make that 1% difference that much less.

Right now, the analysts are forecasting three more rate hikes by June of next year.¹⁰ If that happens and short rates rise too far, we’ll invert the yield curve and have more serious discussions about a possible recession. If we do have a recession, yields will come down but for all the wrong reasons.

The solutions aren’t popular, but just like a patient with multiple major health issues, some drastic measures may need to be taken. First, we need to get the price of oil back down, then balance our budget and finally start paying down our debt. Let’s not let the patient die because we lack the discipline to change our ways and adopt a healthier lifestyle.

Coming this week

• As has been the case lately, there will be no significant data on Monday, although we may get a Fed speaker.
• We’ll see quarter-end and monthly jobs data this week. Tuesday will feature the Job Openings and Labor Turnover Summary (JOLTS) report for August. (This number has a month’s lag, so we won’t see September figures until early November.) We’ll also hear from lots of Fed speakers and see the latest Case-Shiller home price index and consumer confidence numbers.
• On Wednesday, we’ll get the ADP national employment report, as well as the third and final second-quarter GDP reading, plus personal income and spending. The latest inflation data will be released in the form of personal consumption expenditures (PCE), the Fed’s preferred measure of inflation. We’ll also hear from more Fed speakers and see recent MBA mortgage application numbers.
• Thursday will be fairly quiet, with the usual weekly unemployment claims. Then we’ll end the week with the Bureau of Labor Statistics (BLS) employment situation report and hourly earnings for September, which were running behind inflation at 3.1% last month.¹¹

Sources:

¹ Fred Imbert, et al. CNBC. Sept. 24, 2026. “30-year Treasury yield hits highest level since 2004 as bond market rout continues.” https://www.cnbc.com/2026/09/24/us-treasury-yields-bonds-fed-inflation.html. Accessed Sept. 26, 2026.

² CNBC. “WTI Crude (Nov’26).” https://www.cnbc.com/quotes/@CL.1. Accessed Sept. 26, 2026.

³ U.S. Bureau of Labor Statistics. Sept. 11, 2026. “Consumer Price Index Summary.” https://www.bls.gov/news.release/cpi.nr0.htm. Accessed Sept. 26, 2026.

⁴ CNBC. “U.S. 10 Year Treasury.” https://www.cnbc.com/quotes/US.10. Accessed Sept. 26, 2026.

⁵ Ryne Mauck. Yahoo! Finance. “July 16, 2026. “Small Caps Are Beating the S&P 500 by the Widest Margin Since 2003. These ETFs Let You Ride the Rally.” https://finance.yahoo.com/markets/stocks/articles/small-caps-beating-p-500-162321967.html. Accessed Sept. 26, 2026.

⁶ David Lawder and Jacob Bogage. Reuters. Aug. 19, 2026. “US debt crosses $40 trillion threshold after doubling under Trump and Biden.” https://www.reuters.com/world/us-debt-crosses-40-trillion-threshold-after-doubling-under-trump-biden-2026-08-19/. Accessed Sept. 26, 2026.

⁷ Bankrate. Sept. 26, 2026. “Compare 30-year mortgage rates today.” https://www.bankrate.com/mortgages/30-year-mortgage-rates/. Accessed Sept. 26, 2026.

⁸ Bloomberg. “United States Rates & Bonds.” https://www.bloomberg.com/markets/rates-bonds/government-bonds/us. Accessed Sept. 26, 2026.

⁹ Bureau of Economic Analysis. Aug. 26, 2026. “GDP (Second Estimate) and Corporate Profits, 2^nd Quarter 2026.” https://www.bea.gov/news/2026/gdp-second-estimate-and-corporate-profits-2nd-quarter-2026. Accessed Sept. 26, 2026.

¹⁰ Collin Martin. Charles Schwab. Sept. 23, 2026. “Fed Hikes: What’s Next for Treasury Yields?” https://www.schwab.com/learn/story/fed-hikes-whats-next-treasury-yields. Accessed Sept. 26, 2026.

¹¹ Bureau of Labor Statistics. Sept. 4, 2026. “The Employment Situation — August 2026.” https://www.bls.gov/news.release/pdf/empsit.pdf. Accessed Sept. 26, 2026.

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