The Dividend Cafe - Tuesday - September 16, 2025

Episode Date: September 16, 2025

Market Recap and FOMC Meeting Preview - September 16th, Dividend Cafe In this episode of Dividend Cafe, host Brian Szytel covers the market performance on a fairly uneventful trading day, with the DOW closing down 125 points, and both the S&P and Nasdaq seeing minor declines. The discussion shifts to the upcoming FOMC meeting, highlighting the high probability of a 25 basis point rate cut, potential dissents from new appointee Governor Steven Miran and others, and the implications for future Fed policy. Retail sales and industrial production data show stronger-than-expected performance, despite a softening labor market. Brian also touches on the Home Builder Confidence Survey and its correlation with interest rates and the housing market. The episode ends with a reminder to tune in for the next update and reach out with questions. 00:00 Introduction and Market Overview 00:28 FOMC Meeting and Rate Policy Expectations 01:01 Potential Dissents and Fed Dynamics 01:43 Understanding the Taylor Rule 03:16 Current Economic Indicators 04:10 Conclusion and Sign Off Links mentioned in this episode: DividendCafe.com TheBahnsenGroup.com

Welcome to the Dividing Cafe, weekly market commentary focused on dividends in your portfolio and dividends in your understanding of economic life. Good evening and welcome into Dividend Cafe. This is Tuesday, September the 16th. Brian Saitel is with you here on a fairly uneventful day overall in trading. The market ended up closing lower on the day. It had been waffling around Fair Value, but we closed down on. 125 points on the Dow. S&P was down 10 basis points. NASDAQ was down seven basis points, so just barely flat. The 10-year was flat. Didn't budge a whole lot. We're still at 4.03.

And of course, tomorrow, all eyes will be on the FOMC meeting, which will conclude. And they'll set rate policy. There's now more or less what has been a 96% chance of a 25 basis point rate cut and a 6% chance of a 50 basis point rate cut, which isn't likely to happen. And the guidance that they'll end up giving is going to be the most important thing. That happens after the meeting, partly after the meeting in their statement, the official language and how that will change. And then also the press conference, which is really going to be the most important part. I do think this time around you're going to get more dissension than in the past.

You've got, remember, Governor Mirren, Stephen Mirren that was just appointed by the Senate yesterday is the Trump appointee and is likely to dissent and go for a 50 basis point rate. cut. And then you could also get folks like Bowman or Waller, which could be jockeying for a Fed job themselves, do the same thing. And if you've got all three of them, that would mean that this would be the first meeting with three dissents since 1988. So quite a long period of time there, call it 30 plus years, if that were to happen. It'll be interesting to see, partly just for the data itself and then also partly to see he's actually eyeing the Fed share. There was a question in there today about the Taylor rule. And what does it mean? It's a basically mid-90s algebraic formula that was derived by John Taylor. And it was essentially higher rates when the economy is perceived to be growing it under the optimal level and the lower rates when it's perceived to be growing above it. And that was measured by the output gap. But the reality is that it assumes a 2% above inflation rate. And that's not really realistic these days. In fact, that's actually where not quite where we are now, but pretty close.

So if you think about Fed funds around four and a quarter to four and a half, and you think about inflation somewhere near 2.6 level, then that's not too far off. That said, most consider our current rate pretty restrictive. And so we're looking to bring that down to a terminal rate closer to maybe 1% over inflation. Either way, I think the mandate that Fed has is fine. It's based on stable prices and full employment. I don't know that needs to change. I like the idea of a formulaic expectation on where Fed funds.

should be set versus just people's opinions. But I don't know that there's going to be a perfect one because I think that the different environments cause for different solutions in different periods of time. All that said, we're going to get more information tomorrow after the meeting. It'll be interesting to see what they say, if anything about the balance sheet. I'd be surprised if they're going to bring down interest rates here by 75 basis points before the end of the year, which is what has been priced in and not talk at all about the balance sheet or discontinue quantitative tightening completely. We've got retail sales that were stronger than expected. They were at 0.6% for August. We were thinking more like 0.3. And then July was also revised higher.

So that's a pretty robust number. Even though we've seen some softening in the labor market, people are still out spending. You're seeing that in strong retail sales for the month of August. The industrial production number beat expectations. We were expecting a contraction of a 10th. We got an expansion of a 10th. We'll take it. Again, that's a good sign. and then the HomeBuilder Confidence Survey Index was more or less in line with projections. You still have higher interest rates and that affects housing. Most home builders are thinking that lower interest rates will help, and I'm assuming that they would probably be right.

It's just a matter of will it be enough to help enough in a housing market that remains to be stuck. And I think interest rates are going to have to come down a fair amount before that sort of unfreezes. But that's what I've got for you today. With that, I'm going to let you go. I'll be back with you Wednesday for Dividend Cafe. Reach out with your questions, as always. Thank you very much. The Bonson Group is a group of investment professionals registered with Hightower Securities LLC,

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