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The Key Wealth Institute is comprised of financial professionals representing KeyBank National Association (KeyBank) and certain affiliates, such as Key Investment Services LLC (KIS) and KeyCorp Insurance Agency USA Inc. (KIA). Any opinions, projections, or recommendations contained herein are subject to change without notice, are those of the individual author(s), and may not necessarily represent the views of KeyBank or any of its subsidiaries or affiliates. This material presented is for informational purposes only and is not intended to be an offer, recommendation, or solicitation to purchase or sell any security or product or to employ a specific investment or tax planning strategy. KeyBank, nor its subsidiaries or affiliates, represent, warrant or guarantee that this material is accurate, complete or suitable for any purpose or any investor and it should not be used as a basis for investment or tax planning decisions. It is not to be relied upon or used in substitution for the exercise of independent judgment. It should not be construed as individual tax, legal or financial advice. Investment products, brokerage and investment advisory services are offered through KIS, member FINRA/SIPC and SEC-registered investment advisor. Insurance products are offered through KIA. Insurance products offered through KIA are underwritten by and the obligation of insurance companies that are not affiliated with KeyBank.
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Brian Pietrangelo [00:00:00] Welcome to the Key Wealth Matters weekly podcast, where we casually ramble on about important topics, including the markets, the economy, human ingenuity, and almost anything under the sun, giving you the keys to open doors in the world of investing. Today is Friday, September 12th, 2025. I'm Brian Pietrangelo, and welcome to the podcast. We have a pretty difficult week to talk about in the world today, but before we get there I did have a little bit of fun last evening being able to attend the Eric Clapton concert. We were in the presence of truly exceptional greatness, as you may not know, Eric Clapton is the only individual inducted into the Rock and Roll Hall of Fame right here in Cleveland as a three-time inductee. First with the Yard Birds, second with Cream, and third as a solo artist. The concert was absolutely tremendous and out of respect for the negative events that happened this week the only way I can connect the two dots is to talk about the two songs famous by Eric Clapton: Tears in Heaven and Change the World. And the two negative events that I am referring to this week were the death of Charlie Kirk and the 24th anniversary of the 9/11 events. I remember that day for many reasons and out of immense respect, we do honor all of those that were affected 24 years ago and still affected today as we observe a moment of silence. And thank you for that as we will always remember and never forget. With that I would like to introduce our panel of investing experts here to share their insights on this week's market activity and more. Steve Hoedt, Head of Equities, and Rajeev Sharma, Head of Fixed Income. As a reminder, a lot of great content is available on key.com/wealthinsights, including updates from our Wealth Institute on many different subjects and especially our Key Questions article series addressing a relevant topic for investors. In addition, if you have any questions or need more information, please reach out to your financial advisor.
Taking a look at this week's market and economic activity, we've got three key economic updates for you, including the labor market and the inflation market. In addition, we will have a conversation with our panel on what's going on with the upcoming Federal Open Market Committee meeting that has garnered a lot of attention on Wednesday of next week with the press conference. So first, just yesterday, the weekly initial unemployment claims report came out for the week ending September 6th at 263,000 initial claims. That was a pretty good pop, up 27,000 from the prior week, and this was the second week in a row where we did see increases. This has been a pretty good number for the last 14 to 15 months, and we continue to watch it weekly. This is the second time, then a little bit more of an increase than we've seen on average, so we will watch it carefully to see if it is an indicator as more softening of the labor market.
And secondly was the semi-annual update by the Bureau of Labor Statistics for the non-farm payrolls report for a year ago. And what happens is there are revisions for updated accuracy that happen semi-annually. So this report and this revision goes for the 12 months that end in March of 2025. And the revision was pretty substantial, at roughly 900,000 jobs, fewer than had previously been reported. So again, is this a softening indicator to be taken into consideration by the Federal Reserve next week?
And finally, or third, on the inflation front, we got the expectations and numbers for PPI, or the producer price index, and the news there was slightly favorable in that PPI had gone down a little bit versus expectations in terms of overall producer price index. And yesterday we got The Consumer Price Index report of inflation, which showed some slightly unfavorable news where the month-over-month inflation on a headline basis did go up a bit more than expected. And the year-over-year number also went up, driven by mostly items in food and in shelter. When we exclude food and energy, the core, which is a PCE reading that people like to look at, it's a little bit more smoother of an indicator, it stayed constant year- over-year at 3.1%. So let's turn to our panel to start a conversation on the podcast today, and we will begin with Rajeev to get his reaction to the CPI data and other employment economic data as to what it means for the Fed next week, and also other topics regarding bonds and yields. Rajeev?
Rajeev Sharma [00:04:48] The latest economic data continues to support a Fed that is pretty much ready to pivot towards rate cuts. The CPI report this week showed that inflation is elevated, but it's not really accelerating. And that gives the Fed a little bit of cover to cut rates without the fear of some kind of policy error at next week's FOMC meeting. One thing the Fed does not want to do is to start cutting rates and then have to raise rates later. We've talked about that a lot in the past. That it's very important for them to get this right. So they have waited for quite a bit of time with this wait and see approach, but right after Jackson Hole Symposium, you did see the pivot from Fed Chair Powell's comments. There were several data reports that had to come out after that, and all of them have pretty much supported this rate cut for next week. So you have a core price index increased at 0.3% from July. Separate data showed U.S. Initial jobless claims jumping to the highest in almost four years. So you get a relatively tame inflation reading, and then you have signs of a cooling job market. This has led to this continued rally in the bond market. And this is really being fueled by speculation that the Fed will cut rates for the first time this year.
The question has now moved away from, will they cut to how deep will they cuts rates? And currently traders are pricing in at 25 basis point rate cut for next week's FOMC meeting. And there's a- just about shy of 10% chance that we could get a 50 basis point rate cut at that meeting. But if you look at what we have for the remainder of the year, most traders are now starting to price in almost about three rate cuts until the end of 2025. So that would pretty much mean that we would get 25 basis points at the remaining three FOMC meetings that we have this year.
Now what we're having right now is what a lot of people are calling an everything rally in the bond market. Treasuries are building momentum. They're showing very little signs of fading. And it's all being fueled by these imminent rate cuts. You have a two-year treasury note yield that's hitting 3.55%. You have the 10-year right around 4.06%. And you will start to see this momentum continue. And I can imagine that buyers will continue to find opportunities to step in. We did have some treasury auctions this week that were in the longer end of the curve. They all went very smoothly. So you do have demand out there for treasuries. I've always mentioned this 4% point for the 10-year. Every time we get close to that 4% point on the 10 years on a yield basis, you see a lot of buyers start to step in. So I could see the 10 year right now eyeing that 4 percent level. The yield curve has steepened. We've talked about this before. We haven't seen this kind of steepening for four years now. It's the steepest that we've had in four years with front-end yields moving lower at a faster clip than longer end yields.
And so I really think right now, the big question right now is, you know, let's get this rate cut. Let's see what happens on the FOMC meeting next week. What is the really the indications that we have going forward from that? But really all systems are go right now. Even credit spreads have been extremely resilient through all this. There's been a big demand for corporate bond paper and that's continued for quite some time now, but I feel like investors right now are feeling Like this is, might be. One of the last opportunities to get really high-quality blue chip companies at yields that they haven't at coupons and yields that they haven’t seen for a long time. They feel very comfortable with these names. So a lot of the new deals that have been priced, a lot of new issuers that have come to market before the FOMC meeting. These deals have done extremely well and the demand continues and supply is just not enough for corporate bond buyers out there. So. I think this theme will continue and I'm sure when we have this podcast next week, we're going to have a lot more to talk about what the Fed did.
Brian Pietrangelo [00:08:40] Right, Rajeev, speaking of the Fed and the Fed independence and the composition of the Board of Governors that are voting members on the Fed, we've got two updates that we probably should share that would, again, give us an idea. Is there gonna be a slow hand in terms of Fed rate reductions or are that their breaking point given the economic data and the competition of the Fed that we've updates on Stephen Miran and Lisa Cook? What are they?
Rajeev Sharma [00:09:04] Yeah, I mean, this is a very interesting point. I mean the Senate Banking Committee voted 13 to 11 along the party lines and got Stephen Barron into the Fed governor position. And I think right now the Senate still has to take a full vote, but probably that'll happen next week. The vote does give Trump another ally on the Fed's board and it does open the door again, if it hasn't already been open for controversy surrounding the Fed's independence. I think what's going to be very important for the markets right now is watching that independence.
If you have, if you start seeing any signs of a one-sided Fed, I think it does add to some of those questions about the Fed’s independence. Many of the allies that I've said that would be Trump's allies in here have already called for multiple rate cuts and aggressive rate cutting cycle. So you could start to see some of the expectations of 2026 rate cuts being even higher than they currently are. Right now, those expectations are one rate cut per quarter. If we start getting the makeup of the Fed becoming more dovish or more supportive of Fed rate cuts, you could really start to see those questions start to rise. Is the data that we're looking at correct? Is the Fed doing what they're supposed to be doing as far as a dual mandate goes inflation and price stability and labor market full employment. I think that we're going to really have to see how this composition plays out. You also mentioned Lisa Cook, who all talks were about to remove her. Trump wanted to remove from being a Fed governor. So there was a lot of controversy surrounding that. The courts have decided that she could keep her position right now. And again, that also adds to this confusion about how the Fed's independence is going cloud going forward.
Brian Pietrangelo [00:10:51] And as we talk about Fed rate cuts, Steve, this continues to propel the market forward to new all-time highs in face of the uncertainty. What are your thoughts on where we're going and where we were this week and what we see playing out for the remainder of the year?
Stephen Hoedt [00:11:04] Brian, you know, when you look at the market, it really does come down to a few factors for investors or at least people who are paying attention to the market on an ongoing basis. And that is trend, momentum and conditional factors are what dominates, right? So the trend has been up since we came out of the Liberation Day situation earlier this year. Momentum picked up and accelerated then as we got through the summer. And we've seen rotation into cyclicals and things like this that tell you that the rally has longer legs. And I think there's a really important message for investors here from the seasonal situation. We've talked a lot about how the September-October time frame is normally a weak time for the market. The thing to really pay attention here to is when something is supposed to happen, but it doesn't. There's information there. And that tells you how strong this market is right now. So the market is essentially shrugging off the typical seasonal pattern and saying, this doesn't matter to us this year. Whatever reason you might throw at this market to try to go down here in September, it does not seem to care. So I think that tells how powerful this setup is behind the market right now. I think for all the talk about the employment situation and all this other stuff, and very clearly the huge revision calls into question how strong the economy has actually been over the last year or so. I think that when you look at the AI spending and other things, there are definitely some very strong pillars to the economy right now. I think there might be, again, bifurcation, but you're still in a pretty decent place. I don't think you're in a place where we would say this is a recessionary economy and you're going to put Fed rate cuts on top of that. And if you look historically for the market, when the Fed has been cutting rates absent a recessionary scenario, it's been very bullish for stocks. So assuming that, again, that we're not in a recession, which we don't think we are, and you've got Fed rate coming, the market sees that as a setup to say all systems go to the upside, and I don't think that we think there's any reason to fight that at this point.
Brian Pietrangelo [00:13:56] Steve, we often talk about other factors that could be contributing to the long-term trends of the market, like oil and housing and the dollar, mortgage rates seem to be coming down. Do you have any thoughts on at least mortgages and then the geopolitical environment with oil?
Stephen Hoedt [00:14:08] You know, oil is a funny one. You know when you look at it again, this is one of these ones where pay attention to what's happening when something is supposed to be doing something and it's not when you hear the news that's coming out of OPEC and other places about production numbers and things like this, you would think that oil should be trading much lower than where it is, but it's not, it continues to hang around 60 bucks, give or take a couple of dollars on either side. Has not made a major leg lower. And we think that that is a pretty telling thing. And I think it comes back to this idea that. When you think about the IEA and other people calling for peak oil demand, that we're not at peak oil demands. You know, it's going to continue to grow and you're going to see this underlying, there's going to be an underlying bid for crude in these assets going forward. So something to think about is you look at the setup in the commodities markets heading into the end of the year and in the next year, oil is stronger than it should be given some of the underlying fundamentals.
Home builders, I mean, and the ancillary consumer discretionary stuff that touches it like (Home) Depot and Lowe's, you know, it's a funny market right now with that because it's really a tale of two markets. You've got new build housing that's being stimulated by the builders themselves, buying down mortgage rates. And that part of the market seems to be fairly healthy, but then existing home sales are languishing because people who are in existing homes with low mortgage rates are not really willing to budge. And we do see some price concessions coming down to get things moving. And, you know, it's been a while since we've been in a market in the US where we've seen housing prices weakening a little bit. So that's something again to watch as we head through the balance of the year, but we don't really see at least right now any major.
Brian Pietrangelo [00:16:11] As our final thought, I want to give you, Steve, and then you, Rajeev, a chance to comment. I go all the way back to November and December of 2024, when we created our 2025 outlook from the Chief Investment Office here at Key Wealth. And I remember very distinctly, Steve. Your call was the first half would be fairly neutral and choppy with a lot of uncertainty, but the second half would have an opportunity for an upturn, and here we are, almost three quarters of the way from the year, and we're seeing that trend. Anyone add? Changes or are you still on the same trajectory?
Stephen Hoedt [00:16:42] I think that we're still on the same glide path, Brian. I think the one thing I would say is the while the call has been better than I could have possibly hoped for, I do think that the magnitude to the downside and then the magnitude of the recovery to the upside did take us by surprise, to be honest. So I think it's been good to be on the right side of things here because we were anticipating some weakness, got taken by surprise about how weak it got, and then the same thing when we saw the market turn. And we definitely believe that we're in a position to see those gains continue through the end of the year. Same for you.
Brian Pietrangelo [00:17:26] I think you called for two or three rate cuts by the end of the year. We're on target for exactly that call. So kudos again. Any thoughts or updates from you?
Rajeev Sharma [00:17:35] Yeah, I think, you know, what was very interesting is we ended 2024. We were making that call for two to three rate cuts in the second half of 2025. The market was completely against us at that point. They were calling for four to five rate cuts, multiple rate cuts into 2025. We didn't subscribe to that. And I think that was a right call because there were a lot of moving parts. I mean, you have a Fed that's very data dependent. We didn't have enough data at that point to show that inflation was actually getting to their 2% target. So we couldn't really justify why. Market was calling for four to five rate cuts just because they had started the rate cutting cycle in 2024. One of the things I would say is that the Fed has waited. They've done their wait and see approach, but now I think they are ready to start the rate-cutting cycle. As I mentioned earlier, they don't want a policy error, so perhaps waiting will avoid that. But I would that this has been a challenging year for fixed income. There's been a lot of moving parts just like Steve mentioned about the equity markets. We've had a lot of movement. But the one thing that's been extremely resilient has been credit spreads. Besides two weeks in early April, we did see credit spreads move out wider, gap a little wider at that time, but immediately they snapped back by mid-April and they have not looked back since. I think the support of the credit markets has helped all risk assets in general.
Brian Pietrangelo [00:18:51] Thanks for the conversation today, Steve and Rajeev. We appreciate your insights. And before we close the podcast today, we've got a program note for you again, our final reminder for next week's National Call that we are hosting by Key Wealth on Thursday, September 18th at 1 p.m. Eastern. The call is dedicated to a topic that we think is exciting. It is AI: Everything You Are Afraid to Ask but Need to Know. Our CIO George Mateyo will be hosting the call with guests from not only KeyBank, but also two individuals from Google to talk about what's happening with AI. The topic of artificial intelligence is omnipresent, so you'll want to tune in to learn as much as you can. Again, a reminder Thursday, September 18th at 1 p.m. Eastern. Well, thanks to our listeners for joining us today and be sure to subscribe to the Key Wealth Matters podcast through your favorite podcast app. As always, past performance is no guarantee of future results and we know your financial situation is personal to you. So reach out to your relationship manager, portfolio strategist, or financial advisor for more information and we'll catch up with you next week to see how the world and the markets have changed and provide those keys to help you navigate your financial journey.
Disclosures [00:20:11] We gather data and information from specialized sources and financial databases, including, but not limited to, Bloomberg Finance LP, Bureau of Economic Analysis, Bureau of Labor Statistics, Chicago Board of Exchange Volatility Index, Dow Jones and Dow Jones NewsPlus, FactSet, Federal Reserve and corresponding 12 district banks, Federal Open Market Committee, ICE Bank of America Move Index, Morningstar and Morningstar.com, Standard & Poor's, and Wall Street Journal and wsj.com. Key Wealth, Key Private Bank, Key Family Wealth, KeyBank Institutional Advisors, and Key Private Client are marketing names for KeyBank National Association, or KeyBank, and certain affiliates, such as Key Investment Services LLC, or KIS, and KeyCorp Insurance Agency USA, Inc., or KIA.
The Key Wealth Institute is comprised of financial professionals representing KeyBank and certain affiliates, such as KIS and KIA. Any opinions, projections, or recommendations contained herein are subject to change without notice, are those of the individual authors, and may not necessarily represent the views of KeyBank or any of its subsidiaries or affiliates.
This material presented is for informational purposes only and is not intended to be an offer, recommendation, or solicitation to purchase or sell any security or product or to employ a specific investment or tax planning strategy. KeyBank nor its subsidiaries or affiliates represent, warrant, or guarantee that this material is accurate, complete, or suitable for any purpose or any investor. It should not be used as a basis for investment or tax planning decision.
It is not to be relied upon or used in substitution for the exercise of independent judgment. It should not be construed as individual tax, legal, or financial advice. Investment products, brokerage, and investment advisory services are offered through KIS, Member FINRA, SIPC, and SEC-registered investment advisor. Insurance products are offered through KIA. Insurance products offered through KIA are underwritten by and the obligation of insurance companies that are not affiliated with KeyBank. Non-deposit products are not FDIC-insured, not bank-guaranteed, may lose value, not a deposit, not insured by any Federal or state government agency.