Don\u2019t Shoot Me \u2013 I\u2019m only the Drummer<\/p>\n\n\n\n
Side-by-Side: The Economic Case For and Against a 25bp Hike<\/em><\/p>\n\n\n\n One of Elton John\u2019s great early albums was called \u201cDon\u2019t Shoot Me, I\u2019m Only the Piano Player.\u201d Well, I play the drums, not the piano, and the current drumbeat in the financial markets is disconcerting. But please don\u2019t shoot me. Municipal issuers and public finance professionals are keeping a close watch on Washington ahead of next week\u2019s pivotal FOMC meeting. The debate over whether the Fed will raise rates comes on the heels of persistent core price acceleration and escalating geopolitical energy pressures. While there are compelling short-term arguments on both sides of next week’s decision, looking at the bigger picture reveals a broader trend. At Buck Financial Advisors, the core macro thesis remains unchanged: we are entering a prolonged era of structurally higher inflation and elevated market interest rates. To help contextualize next week\u2019s decision within this long-term trend, below breaks down the defining arguments for and against a rate hike, followed by how it fits (or doesn\u2019t) into the longer-term trends.<\/p>\n\n\n\n Bottom line: two capture stories, not one<\/strong><\/p>\n\n\n\n Both cases in the table are internally coherent and draw on the same underlying facts — elevated core PCE, breakeven inflation expectations contained longer term but increasing shorter term, a fragile Treasury refinancing picture, deteriorating consumer sentiment, and a synchronized global tightening backdrop. But the decision itself is not a clean signal of which pressure won, because there are two separate, opposite ‘boxed in’ stories available depending on which pressure you think is illegitimate for the Fed to bow to.<\/p>\n\n\n\n Fiscal-pressure capture: holding or cutting under visible fiscal stress — record debt-service costs, an intervention already aimed at capping Treasury yields — risks the perception that the Fed is subordinating its mandate to help finance government debt. Under this story, hiking anyway is the independence signal.<\/p>\n\n\n\n Market-expectations capture: futures and the front end of the curve have likely already priced a high probability of this hike, especially with the ECB having just moved. Deviating from that pricing risks a disorderly repricing across rates, FX, and equities — arguably a faster shock than the hike itself. Under this story, hiking is not independence at all, it is the Fed delivering what markets have already decided for it, and holding — defying priced-in consensus because the data argues for it — would be the actual show of independence.<\/p>\n\n\n\n Buck Financial Advisors\u2019 View<\/strong><\/p>\n\n\n\n Like so much in the financial press, Wednesday\u2019s decision is, in my view, receiving outsized attention relative to its importance. The press are like magicians, in my view: holding up the shiny object in one hand to divert your attention from what is going on with the other. I outline above compelling short-term arguments on both sides just so that, if the Fed doesn\u2019t raise rates Wednesday, you don\u2019t take that as capitulation on its part, though the financial press will certainly say it is. The bigger picture reveals a broader trend. As written previously (\u201cAre We Still in Kansas?\u201d), the macro backdrop to a host of things like the cost of construction to interest rates supports increases in both, which I believe will then result in the monetary authorities implementing some sort of yield curve control to bring down interest rates (but not construction costs per se). That would be consistent with the Fed holding pat on Wednesday. If they do hold pat, that could mean the fiscal dominance may have begun.<\/p>\n\n\n\n A recent financial piece I read included the statement \u201cIt\u2019s not interest rates that matter, it\u2019s interest expense.\u201d (Grant\u2019s Interest Rate Observer<\/em>, August 28, 2026 \u2013 \u201cDebt is the word unspoken.\u201d) While the Fed sets interest rates, the impact of those rates is that rate multiplied by the stock of debt against which it\u2019s applied. Interest expense is now 19% of Federal revenues and exceeds defense spending (13-14%). Think about that \u2013 we spend more on paying our creditors, including foreign creditors such as China, than we spend on defending ourselves! Currently, interest expense sits at about 3.2-3.3% of GDP. That means over half of the fiscal deficit is due to interest expense. Many sources note that the percent of the US Federal budget (e.g. percent of spending) needed for interest expense is about 14%. And this is with an economy not in a recession.<\/p>\n\n\n\n Where this lands vis a vis a government\u2019s ability to pay is debt-to-GDP. When Paul Volker raised interest rates in the early 1980s to fight 1970s inflation, this ratio stood at about 30%. Today this ratio is about 122%. You\u2019ve heard the phrase \u201cWe\u2019ve mortgaged our future!\u201d That\u2019s true. But instead of treating this like a mortgage and getting this ratio down to, say, 60% over the next few decades, our government (responding to the incentives we voters give them) refuses to address this, and it resorts to gimmicks which will not address the long-term issues.<\/p>\n\n\n\n These gimmicks include buying Yen (to stave off Japan selling US Treasuries), increasing to $6 billion the buying off-the-run long-term Treasuries, increasing the Foreign and International Monetary Authorities (FIMA) repo facility (to stave off Japan from selling US Treasuries), and others. But the most concerning gimmick used to help contain interest expense to me is the Treasury\u2019s concentration of the debt stack towards the short-end of the curve, resulting in the need to finance about $12 trillion per year currently: $10 trillion maturing over the next 12 months plus $2 trillion in current deficit spending. Next year, that grows with next year\u2019s additional budget deficit. According to Debt Dashboard, the current average interest rate on outstanding Treasury debt is 3.44% versus 1.48% five years ago. And, next year that average will be higher, so they will be refinancing more debt into a higher interest rate environment.<\/p>\n\n\n\n In his tour de force \u201cThe Price of Time: the True Story of Interest\u201d,<\/em> Edward Chancellor outlines three ways governments work out of a debt crisis, meaning a situation where a country\u2019s debt servicing costs exceeds its ability to pay the debt (14% of budget, 122% debt-to-GDP, the inevitable recession will make these worse). These are: 1) outright default, 2) tax increases and spending cuts (currently politically unpalatable), and 3) debasing the currency to service debt with less valuable dollars in the future. Chancellor shows governments over time have overwhelmingly chosen currency debasement. Currency debasement equals inflation, the same item needing more units of the currency to acquire. That house you want to buy is the same house it was five years ago, it just needs more dollars to acquire because the seller needs more dollars for the next house, for car repairs, for medical insurance, for whatever. It\u2019s not like your house is generating increased future cash flows like that of a growing company. It\u2019s the same house. Gold is the same 1 oz.<\/p>\n\n\n\n I believe country\u2019s debt and debt servicing costs will be the dominant driver of decisions of policy-makers over the coming few years, and that, like the numerous times before, the easiest political way out of a this is to debase the currency, i.e. inflation. This has begun but is not in full force of where I believe it will ultimately land. If I\u2019m right, this has implications for you: 1) whenever you might be looking at financing a facility, if your budget allows, consider going out as long as possible on the yield curve when borrowing to finance your facility; and 2) look at adaptive re-use for new facilities versus new construction to make it more affordable, or other strategies that achieve the same result. In terms of the maturity of your debt, going long now avoids potentially higher interest rates in the future. And, if future financial repression occurs (QE, yield curve control), you could refinance in that environment if the rate is lower because inflation will really be in force at that time, so you will repay debt with cheaper dollars in the future.<\/p>\n\n\n\n So, whatever happens on Wednesday (September 16, 2026) won\u2019t change the big picture. You are most definitely not in Kansas anymore, and I believe ultimately the politicians will choose financial repression versus spending cuts and revenue increases to allow the debt to be inflated away to a more reasonable level of debt-to-GDP. This would make financing your facilities more expensive over time.<\/p>\n\n\n\n But, again, don\u2019t shoot me, I\u2019m only the drummer.<\/p>\n\n\n\n This article was prepared strictly as a summary of general macro-economic analysis and represents the long-term market thesis of Buck Financial Advisors LLC as of September 12, 2026. It is intended solely for educational and informational purposes; it does not constitute specific investment advice, a solicitation, or a municipal advisory recommendation regarding the timing, structure, or issuance of any securities transaction. This content has been reviewed and approved in accordance with the firm’s Written Supervisory Procedures (WSP).<\/em><\/em><\/p>\n","protected":false},"excerpt":{"rendered":" Don\u2019t Shoot Me \u2013 I\u2019m only the Drummer Side-by-Side: The Economic Case For and Against a 25bp Hike One of Elton John\u2019s great early albums was called \u201cDon\u2019t Shoot Me, I\u2019m Only the Piano Player.\u201d Well, I play the drums, not the piano, and the current drumbeat in the financial markets is disconcerting. But please… read more<\/a><\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-530","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/www.buckfinancial.net\/blog\/wp-json\/wp\/v2\/posts\/530","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.buckfinancial.net\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.buckfinancial.net\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.buckfinancial.net\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.buckfinancial.net\/blog\/wp-json\/wp\/v2\/comments?post=530"}],"version-history":[{"count":1,"href":"https:\/\/www.buckfinancial.net\/blog\/wp-json\/wp\/v2\/posts\/530\/revisions"}],"predecessor-version":[{"id":531,"href":"https:\/\/www.buckfinancial.net\/blog\/wp-json\/wp\/v2\/posts\/530\/revisions\/531"}],"wp:attachment":[{"href":"https:\/\/www.buckfinancial.net\/blog\/wp-json\/wp\/v2\/media?parent=530"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.buckfinancial.net\/blog\/wp-json\/wp\/v2\/categories?post=530"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.buckfinancial.net\/blog\/wp-json\/wp\/v2\/tags?post=530"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Case Against Raising<\/strong><\/td> Case For Raising<\/strong><\/td><\/tr><\/thead> Inflation level vs. anchoring<\/strong> The longer you go out on the yield curve, the more inflation expectations seem contained. The 10-year breakeven inflation has stayed in a contained 2.25%-2.37% band over the past month — not the kind of unanchored, spiraling move that typically forces an emergency response. The market still trusts the Fed’s long-run credibility without another hike proving it. The ‘contained’ read applies most cleanly to the long end of the curve, though — it is not the full inflation-expectations picture.<\/td> Inflation level vs. anchoring<\/strong> Core PCE remains at 3.3%, more than 50% above the Fed’s 2% target — a persistent overshoot, not a blip. Unlike the 10-year maturity, though, the 5-year breakeven rose roughly 20bp over the past month (~2.21% to ~2.41%) while the 5-year real yield barely moved (~2.16% to ~2.17%), so nominal 5-year yields rose in step with inflation expectations rather than real yields falling to absorb them. That is a sign shorter-term inflation expectations are drifting up faster than the longer term shows.<\/td><\/tr> Growth timing and lags<\/strong> Consumer sentiment has been deteriorating, and consumption is ~70% of GDP. Monetary policy works with long, variable lags (12-18 months), so hiking now risks compounding a slowdown that hasn’t fully shown up yet.<\/td> Growth timing and lags<\/strong> Current growth deceleration may be normal cooling from an overheated economy, not distress. A well-telegraphed 25bp move is unlikely to be the marginal shock that tips the economy over — waiting too long risks a larger, more disruptive catch-up hike later.<\/td><\/tr> Fiscal \/ debt-service burden<\/strong> Federal net interest expense is already 19% of federal revenue, heading toward 4%+ of GDP, with ~$10T of debt to refinance this year (80%+ at the short end). A hike raises the government’s own borrowing costs at the worst time and works against the Treasury’s own yield-suppression efforts (the yen intervention, the related expansion of the FIMA facility, Bessent\u2019s \u201cI am the house now\u201d statement).<\/td> Fiscal \/ debt-service burden<\/strong> Holding or cutting under visible fiscal pressure risks the perception of fiscal dominance — that the Fed is subordinating its mandate to help finance government debt. Hiking despite that pressure demonstrates independence, which supports long-run credibility and can lower risk premia over time.<\/td><\/tr> Global policy coordination<\/strong> If the ECB has just hiked too, a Fed hike on top of that is a second leg of synchronized global tightening. Two major central banks withdrawing accommodation simultaneously compounds the drag on global demand beyond what either would do alone. Japan likely to hike in September also.<\/td> Global policy coordination<\/strong> If the ECB hikes and the Fed doesn’t, the Fed risks looking soft on inflation relative to peers — a credibility and currency-stability risk. A perceived dovish gap could weaken the dollar and import inflation, a self-defeating outcome.<\/td><\/tr> Nature of the inflation shock<\/strong> If elevated inflation is substantially supply-side (oil\/geopolitically driven, refining capacity constrained), standard doctrine says central banks should look through supply shocks rather than fight them with demand tools — hiking doesn’t fix a supply constraint, it just adds unnecessary demand destruction.<\/td> Nature of the inflation shock<\/strong> In an environment already marked by fiscal stress and currency intervention, looking through another inflation shock risks reinforcing a perception that inflation is being tolerated systemically — the ‘look through it’ doctrine may not safely apply when credibility is already under strain.<\/td><\/tr> Asymmetry of being wrong<\/strong> Pausing preserves optionality — the Fed can still hike later once the next CPI\/PCE, employment, and sentiment data clarify whether this is persistent inflation or a transient shock working through the system.<\/td> Asymmetry of being wrong<\/strong> Classic asymmetry argument: preemptive tightening is cheaper to reverse than reactive catch-up after expectations shift. The 1970s stop-go policy failures are the standard cautionary lesson for under-tightening into persistent inflation.<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n