Rates, oil and AI put markets under pressure 9/16/26

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0:39Valid through 12-2 while supplies last. Selection varies by location. See associate at lowes.com for details. Good morning. I'm Dominic Chu in for Morgan Brennan this morning, checking U.S. equity futures. We are seeing a little bit maybe of a kind of wait and see, but slight positivity. With green across the screen right now, the Dow's implied by a modest 100 points higher. The S &P higher by about 23 and the tech heavier Nasdaq 100 trade up by roughly 140 points. That, by the way, with the Nasdaq coming off its worst day in two weeks and the Dow coming off what's been its worst 10 trading days of a September going all the way back to 2008.

1:16Now, for the S &P 500 and Nasdaq, they just posted their worst September starts going back to 2020. We're also watching, by the way, what's happening with the Treasury complex, the 10-year note yield falling back towards that 5 % mark as we await today's big Federal Reserve interest rate decision and what will likely be its first rate hike since July of 2023. With all of that in mind, the benchmark 10-year note yield almost exactly on 5.00%. The two-year note yield, which is seen as a proxy by some traders for that Fed policy kind of decision construct, is around 4.657 percent, so slightly lower.

1:58And the 30-year long bond, 5.373 percent. Energy prices also in focus, with crude coming off its highest close since May. We're giving some of that back this morning. U.S. benchmark West Texas Intermediate,$104.50, off by about 1.25 percent. Ice Brent crude futures, the world gauge$107.96 off by about three quarters of 1%. And then to crypto after the Senate failed to advance the Digital Asset Market Clarity Act last night, dealing a bigger blow to the sector. Right now, those Bitcoin prices off by about one third of 1%, 75 ,737. Ether prices,$2 ,402 down about one quarter of 1%. Solana down about three quarters of 1 % as well.

2:45A look at crypto related stocks after getting hit hard on that news yesterday. Right now in the pre-market trade, Coinbase is off about one third of one percent. Half one percent declines for Mara Holdings. Strategies off about half of one percent and Riot platforms up fractionally there. We'll have much more on that story coming up ahead. Let's now see how Europe and Asia are shaping up. Ben Boulos is in London with the international trade. Ben.

3:13Yes, good morning to you, Dom. and European equity markets broadly ticking higher as investors remain focused on what you were talking about just there, today's Fed decision, with a 25 basis point hike broadly expected. The 10-year Treasury yield crossing back above 5 % and its global peers remaining elevated. Now, also in the news this morning, market moving news, EU Commission President Ursula von der Leyen delivering her sixth State of the Union speech, endorsing deeper ties with Canada and opening the door for the country to become the EU's first associate member. Prime Minister Mark Carney with a seat right in the front row as she was delivering that address.

3:54But let's go back to the bond market because German bond yields have eased from their 17-year highs ahead of that decision, just ticking up a fraction again this morning. But the Japanese bond yields are in focus as investors look ahead as well to the Bank of Japan's decision later this week with a CNBC survey showing the central bank likely to hike rates to 1.25%, which would take them to a 31-year high. Certainly interesting times if you're a fan of central bank action. Dominic. All right, Ben Boulos with the latest market action from across the pond. Thank you very much for that. Turning, of course, to today's Federal Reserve decision and what users on Calci and interest rate traders at the CME will expect will be the central bank's first interest rate hike going back to July of 2023.

4:41This, despite White House pressure to cut interest rates and have the U.S., in the president's words, pay the lowest interest rate in the world, even in the face of rising oil prices and inflationary pressures. Joining me now for this discussion is Roger Ferguson, former Federal Reserve vice chairman and a former TIA CEO. He's also a CNBC contributor. Roger, this is an interesting time for newly minted Fed chair Kevin Warsh. There have been, I guess, assertions been made in the media and elsewhere about what kind of a difficult position the Fed is being put in right now. With the prediction markets and CME FedWatch tool in mind, predicting what will be a near certainty of an interest rate hike, is the Fed going to hike rates today?

5:32Well, I think there's no doubt about it going to hype rates today. Three things push in that direction. First, Worsh gave a very hawkish speech at Jackson Hole, trying to get back some of the credibility he may have lost at July press release, press conference. Secondly, all the data that's come in since that time have, I would say, removed any excuse for not. And finally, as you point out, the market is certainly telling him that there's an expectation that he should be raising rates. So all that aligns towards he's going to raise rates or they're going to raise rates. I think the question that's going to be on everyone's mind is exactly what they say about the future.

6:11Worsh does not want to give Ford guidance, but this is going to be immediately to have the so-called dot plots. There will be the press conference. And so I think all ears will be not just on the result, which is a foregone conclusion. But what's he likely to say about, you know, are there further rate hikes in the future? If there are, that brings up an interesting point. A lot of folks out there on the economist side, on the market side, will talk about the notion that these are never one and done type situations when the Fed is involved in interest rate policy. It's not just like a parachute quarter percentage point hypothetical raise that this could be the beginning of a quote unquote cycle that happens.

6:51How much do investors have to be prepared and traders have to be prepared for the notion that this is maybe the beginning of a broader campaign to rein in inflation? Well, there are three possible options here. One is it is one and done. It's sort of just, you know, tapping on the brakes, as Chairman Greenspan once said, when the Fed under his leadership did one hike and then waited for quite a while. Secondly, it's a possibility it's a campaign. But I want to put forth the third option, which is maybe there'll be two moves, just enough tightening to create credibility, but not so much as to really slow the economy thematically, because I think they still have a hope, maybe a forecast, that with just a modest tightening, inflation over the next two, maybe three years will come in at the 2%, and some of the shorter-term shocks that we've had may start to recede.

7:48So I'm not sure campaign is in the the future. I would imagine maybe, you know, one hike today and maybe one in December and then possibly wait and see stands. So I think we should be open to all three possibilities. Roger, as you take a look at the way things have developed in the marketplace right now, the yields have been rising across the yield curve. There are always there's maybe dozens of reasons why that could be in play. But but a handful of the ones that are kind of front of mind right now are the inflationary pressures because of the war in the Middle East and oil prices. There's also the growth of the U.S.

8:22economy that could be triggering towards inflation. There's also this maybe crowding out effect because there's so much bond issuance from hyperscalers and all these other A.I. companies that's competing with money for treasuries. And maybe a dozen more reasons why. I wonder, in your opinion, what is the primary maybe one or two drivers behind what's behind race? And by the way, I'm not even bringing in the deficit situation in this country or anything else. Well, look, that's what I would bring in. I would think first there's a supply and demand dynamic going in here. There's quite a bit of supply of Treasury securities here in the U.S.

8:59and more broadly around the world. And so the first thing that's happening is investors in those sorts of securities are saying, with that uncertain future or with that certainty of quite a bit of supply on the market, Mike, we investors expect to get paid. We expect to get paid more. And so that's the first thing that's going on is the fiscal situation here does not look like one that is going to move towards contraction anytime soon. In fact, you know, President Trump and then Secretary Besant both talked about, you know,$5 ,000 per citizen bonus, depending on how the election turns out. So no sense of a restricted policy here on the fiscal side.

9:39That's item one to my mind. And then item two is, in fact, because of that fiscal stimulus, the growth in the U.S. economy looks pretty sound. It's not completely balanced. There are some weak spots, but we don't seem to be on the edge of turning negative in terms or even slowing in terms of growth. And then item three is, as you say, inflation. So I put it in that order. Supply and demand and balance growth potential here are relatively strong. strong and certainly inflation that needs to be under control. So those are three that I see. All right. It's a big day ahead for everybody in the markets.

10:17Roger Ferguson, thank you very much for taking the time to join us. We'll see you soon, sir. Thank you. All right. A lot more to come here on Morning Call, including Mark Zuckerberg joining the growing chorus, pushing back against AI doomsday warnings, joining the likes of Jensen Huang and others. This as OpenAI continues to toe the line of what it calls pacing the frontier. We do need to take safety seriously. And if it means we have to pace the frontier and slow down, absolutely, we're going to listen to our researchers and do that. But as a CFO, I need to then make business decisions around it.

10:53But no, I think that we are doing what we do well at OpenAI. We're pacing that frontier and taking that safety in alignment really seriously. All right. In addition to that, the crypto crush and what Coinbase CEO Brian Armstrong is telling CNBC about the next steps for regulation on that front. And later on, hacking on the high seas as we follow reports of compromised oil tankers heading for U.S. shores. We've got a very busy hour still ahead when Morning Call returns after this commercial break. Hey, Fidelity, can I get a second opinion on stocks in the Fidelity app? with Fidelity. It's easy to get an outside opinion from independent experts in a single score.

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12:46Join the women who found real relief. Head to myalloy.com and use code SXM20 for 20 % off your first order. Valid on products only. All right, welcome back. That was a live shot of Washington, D.C., one of the places where there is an ongoing and growing debate around slowing down AI development. NVIDIA's CEO Jensen Huang doubling down on his pushback against calls by Frontier AI Labs to pump the brakes, tap the brakes on AI advancements over the potential risks. Speaking with our own Jim Cramer on Mad Money last night, downplaying the dire warnings of threats to humanity. We're not going to die in 2030.

13:28There are so many people in the world who are going to build AI properly. We're going to have all kinds of guardrails, invent all kinds of technology for safety and security. All of that is happening around the world. It's not just two companies building things. There are thousands of companies building things. And so we're going to create AI that's incredibly useful. It's going to be incredibly helpful. And it'll be incredibly safe. All right. Meta CEO Mark Zuckerberg, now just the latest tech CEO to weigh in as well, echoing Huang's view on a post on X saying in part, quote, quote, every lab has the responsibility and incentive to move at the pace required to train its models safely and the ability to take its own actions to ensure that happens, end quote.

14:17Adding also that Meta delayed the release of its own Muse AI agent earlier this year to strengthen security around Muse. All this, as Bloomberg reports, Anthropics' top Washington executive has met with senior Trump administration officials to discuss AI safety risks. as President Trump dismisses fears about AI, calling it a quote unquote hoax. For more now, let's bring in Eric Shing, founder of the Institute of Foundation Models and AI Research Lab. Also, Jan Salagi, co-founder and CEO of the AI markets and data platform Reflexivity. Gentlemen, thank you both for being here with us right now.

14:55I've laid out a lot of context on purpose because it frames the discussion about just how much we should either pace or let it go, this AI kind of rampant development? And Eric, I will go to you for this one first. The debate, is it a legitimate one? Should we be concerned that this is the origin story of Skynet playing out in real time? Well, of course, we need to be concerned about safety issues from any sources, including AI. But on the other hand, when we talk about threat to humanity, we need to be a little more rigorous. For example, we can say that one day the sun will run out of this fuel and they extinct.

15:34But there should come with a probability and also the lifespan, you know, the time taken to get there. There is always a tradeoff between the cost, the missed opportunity, and also the risk that you actually substantially experience. In this particular case, I'm with, you know, Jensen and with Mark because I think AI is not developing fast enough. We have a lot of open problems, you know, that can, you know, benefit from a fast AI development, such as drug discovery, process medicine environments. AI are playing a lot of a role in speeding up discoveries over there. And also, AI is not just about large language models.

16:13There are many dimensions of AI which actually needs to be, you know, exhibited to discover new problems and solve new problems. And now, you know, Jan, we are familiar with your product. Many people on Wall Street are. In your experience so far, has the pace of AI development been fast enough to keep up with the expectations that humanity has for the outputs that it will produce? And then, by extension, how much do you feel as though you should be going faster as the CEO of a company that's trying to make the most robust AI out there? You know, it's interesting. It's a great question. Thanks.

16:52Thanks for having me. What our experience has been a lot with specifically guardrails, because we work, reflexivity works in finance. We work with hedge funds. We work with large banks. And so I would say that the pace, from our point of view, no, it hasn't been excessive. I don't think that we've been racing towards something that now seems like it could somehow run away from us. But again, we do work in an area where it has always been very, very strictly focused on making sure that the users of AI remain authorship of all the decisions. There are all sorts of guardrails in place. So we have quite a lot of experience with putting some limits around the technology.

17:36Eric, one of the cases being made, one of many, is that AI development is being self-regulated because of the importance of open source models. The idea that you can actually see some of these models, the way that they're built, developed, tested, audited. How much do you feel as though that open model is going to act as an effective self-regulatory mechanism for the development of AI going forward? I think open model, open source philosophy and principle is very important for transparency and for trustworthiness because you now make them accessible for researchers, users and developers, you know, to really look into what is behind the product, what method you use.

18:27I use this example of housing experience, right? You want to live in some room. You can pay to live in a hotel without knowing how the room is built. You can buy the house without a blueprint. And when things go wrong, you don't know how to fix. Versus you can buy the house with all footprints, blueprints, and materials and plants. Obviously, the third one is what we do as a norm. And in software space, I think it is no exception. You need to make this clarity and transparency visible to users and developers so that they can actually take it on from there when things go wrong. And also they can know, you know, what actually causes a strange behavior when they see such thing happen.

19:08So I think transparency is really at the cornerstone of being open. And openness right now, of course, sometimes may compromise quality because the labs that is affordable to do open source may not have that amount of resource to make everything as performant as the frontier models. But the IFM, our institute, is catching up. We're trying our best to be not only open, but also be smarter in making high-performance frontier models more efficiently and more affordably. And I also want to say that, after all, AI is a piece of software. It is like a theory in the book. In order to make them to do real harm in physical world, there are already many checkpoints in the physical world that is in place.

19:53And therefore, guardrails is already out there. And of course, we can do more into the software space. But it is not going that far to the point that we need to stop it or slow it down. And Jan, I'll give the last word to you here. as the CEO of a number of companies, right? You know, you're the one CEO in a slew of different companies out there who are trying to kind of pioneer this AI approach and AI development out there. How do you feel your role is evolving vis-a-vis the bigger construct around open AI and some of these other frontier models like Anthropic? How do you as a CEO develop your AI construct in the umbrella of some of those other larger models that are being developed on a more general basis?

20:40Yeah, so actually this is an extremely topical question because I think that now that we've moved to the next phase of adoption across Wall Street, I think that there have been now a number of organizations that are much more deeply involved with using or trying to use the technology. Our role has absolutely shifted in helping them navigate a balance between some of these foundation models and then also a number of open source models and so on. So we have been spending a huge amount of time specifically trying to make sure that they understand the balance, both in terms of cost, in terms of capability, in terms of any kind of vulnerability risks and so on.

21:21Again, I think people in finance are extremely attuned to risks that come with using new technology. But at the same time, now that there has been a proliferation of options and so on, our role has really become, to some extent, also to help them consult on where and what to use and how to balance innovation with safety and so on. All right. An ever-evolving discussion for sure. Eric Shing, Jean Salaghi, thank you both for the conversation. We appreciate it. Now, President Trump, not the only administration official weighing in on this AI debate. Our own Morgan Brennan spoke with Interior Secretary Doug Burgum on the sidelines of the G20 Energy Summit in Houston, discussing the calls to slow down AI development.

22:06It really isn't about the data. It's about manufacturing intelligence. And this is part of we have to win the intelligence race. We have to build more intelligence than China does to win the intelligence race. Not surprising. It's the same people that were telling us the existential threat to the world was going to be, you know, one degree of climate change in the year 2100. That turned out to be false. It's the same people saying now be afraid. It's the be afraid crowd. And be afraid is actually a big business model. You could actually tell people, be afraid, be really afraid, be super afraid maybe of this administration.

22:39Then by the way, send us a check and we'll protect you. Send us a check and vote for us. We'll protect you. That's a false promise because government is not the way forward. Innovation is the thing that has always led the American economy. It's always led American greatness, and we need to lead right now. We cannot slow down. All right. It's an interesting viewpoint there. We're going to hear more from Morgan's conversation with Secretary Doug Burgum, including his view on the continued climb in energy prices. All of that's coming up later on in the show. Well, straight ahead here. First, it was a moratorium.

23:12Now, New York is rolling out a new playbook when it comes to energy bills and data centers. That story's up when Morning Call returns after this break.

23:49know what's going to happen. You can listen to Jeff Lewis live at home or anywhere you are. Download the SiriusXM app for over 425 channels of ad-free music, sports, entertainment, and more. Subscribe now and get three months free. Offer details apply.

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24:35Welcome back to Morning Call, checking some of this morning's big headlines. New York Governor Kathy Hochul is calling on local governments to seek community investments of at least$1 million per megawatt from developers hoping to build new data centers. Earlier this year, New York became the first state to impose a moratorium on new data center development. Hochul's call to action comes as the House in Washington tonight looks to vote on a bipartisan bill aimed at preventing rising utility costs tied to data center development. The U.S. and China are reportedly discussing slashing tariffs on some$30 billion worth of goods, including farm and energy products, ahead of next week's big Trump-Xi summit in Washington, D.C.

25:18This, as sources tell CNBC, NVIDIA CEO Jensen Huang will be attending the summit and a state dinner for those two leaders. Following reports this morning that the U.S. is investigating suspected cyber attacks on at least two foreign-flagged oil and LNG tankers bound for U.S. ports. According to multiple reports, the U.S. Coast Guard and FBI boarded the ships back in August, following indications their communications may have been compromised by cyber criminals. Though authorities have not confirmed whether Iran or other state actors were actually behind those attacks. And SK Hynix is reportedly in talks with Intel about making chips in the U.S.

25:58for the first time. According to a report, SK may be looking to lease part of an Intel facility in Ohio and possibly create a new joint venture with Intel and other cloud firms looking to lock in memory chip supplies. It's unclear if Seoul would greenlight any such deal. Well, still on deck for the show here, pump prices and U.S. growth. Moody's Analytics, Mark Zandi, is here weighing in on what higher for longer oil means for the economy. Morning Call continues next. I'm Dominic Chewin from Morgan Brennan. Welcome back to Morning Call. Let's check U.S. equity futures. They are modestly bid right now with the Dow implied higher by just roughly 85 points.

26:36The S &P higher by just about 20 and that Nasdaq 100 trade up by about 135 points. We're watching treasuries with the 10-year yield falling back towards that 5 % mark as we await today's big Federal Reserve interest rate decision and will likely be its first interest rate hike since July of 2023. With that in mind, the 10-year note yield is 5 on the figure, 5%. The two-year note yield, 4.653%, and the 30-year long bond, 5.371 percent. The Trump administration is hosting a G20 energy conference in Houston this week where a number of deals have already been announced. Cateris, which is backed by Abu Dhabi's sovereign wealth fund, announcing yesterday it will nearly double the export capacity of its liquefied natural gas project in Louisiana as the U.S.

27:24tries to meet demand following disruptions from the Russia, Ukraine and Iran wars. This also comes as the White House is exploring several options to increase U.S. refining to help bring down oil and gasoline prices both here and abroad. Something our own Morgan Brennan discussed with Interior Secretary Doug Burgum yesterday on the sidelines of the aforementioned G20 Energy Conference. It's not a supply issue because America number one producer of oil in the world right now, but we've got a refining capacity issue. So we're looking at all kinds of things. One of the things that we've already enacted was the waiver on the Jones Act.

28:02That allowed refined product from our Gulf refineries to get around up to the East Coast in particular or over to the West Coast. California, again, not only importing two-thirds of their oil from foreign countries, they're importing 25 percent of the refined product from overseas refineries because they chose to block pipelines coming into California. They regulated the high prices that they have in places like California. So we're doing everything we can within the context we have, but I'd say, you know, Venezuela is a huge lift because that Venezuelan oil now flowing towards our Gulf Coast refineries, where a lot of our refining capacity is.

28:40Those refineries were built for Venezuelan oil. So long term, you know, there's lots and lots of positives. And we've got some ideas coming out of that meeting of how we can help every refinery in America squeeze more production out of their existing facilities. Interesting. I mean, there's growing speculation in the market as well, as we do see diesel prices continue to move higher here, that an export ban could become more likely here before the midterm election. Well, as I've said, the export ban was the concept that some people have tossed out. They tossed that idea out on LNG. Oh, if we have an export ban, the Biden administration, we're going to stop building export facilities, that somehow that's going to help create more energy security.

29:25That actually then hurts production because if you can't export it, then why would I develop it here at the wellhead? By lifting that export band, what do we have? We have lower prices. We've got more production. We've got more export capacity. We've been able to help our allies and get lower prices at home. So I've said every idea should be on the table that actually will lower the price of diesel or lower the price of gasoline. I'm not at all confident that that would actually lower the price. All right. Speaking of diesel, gasoline and other refined products, a check on oil prices, which are pulling back alongside with gasoline and heating oil on industry data showing a big increase in U.S.

30:04inventories this past week. But they remain elevated due to continued worries about supply from the Middle East. Take a look at this chart here, which shows how average U.S. gasoline prices, as measured by AAA, have been in lockstep with U.S. benchmark crude since the Iran war began at the end of February. When oil eventually comes back down, it is unlikely gasoline prices will fall at the same pace. The American Petroleum Institute says it typically takes about two weeks for half of a drop in oil prices to reach gas stations and several weeks for prices to fully fall to pace those oil price drops.

30:42Let's now talk more about the economic impact that it's having and bring in Mark Zandi. He's the chief economist over at Moody's Analytics. Mark, you heard the comments from Secretary Burgum. You saw the charts I just laid out. The bigger overarching question I'll have for you to kick off the conversation is just at what level the American economy will really feel a market pinch from higher oil prices? Well, Dom, it already is feeling it, right? I mean, take a look at the 10 year Treasury yield, 5 percent. I mean, that increase in the yield started the day the U.S. and Israel started bombing Iran, February 28th.

31:23Since then, oil prices have been high and interest rates have moved higher as well. And, of course, there's a hit to the American consumer. The typical American household is spending almost, has spent almost$1 ,000 more on gasoline, diesel, jet fuel as a result of the war. So just to give you context, now, there are benefits to the industry, the energy industry. They'll produce more, and that's starting to pick up. So there's some cross-currents here. But the net of all of that is that the U.S. economy has been hit already very, very hard by the higher oil prices and higher energy prices broadly.

32:02Mark, there's no doubt. I can see the prices even at the grocery store for a gallon of milk, for other things that get transported. And a lot of that might be due to rising diesel costs or fuel costs. But I'm still spending. Now, I'm not, of course, indicative of everybody in America, but Americans in general, as the aggregate data has shown, are still spending. They are still drawing on some savings and there are still some some hiccups along the way with regard to the data and how consumers are behaving. But we are still spending generally. At what point do we actually see that spending start to actually drop off measurably in the data?

32:39Well, you know, we are spending. I mean, most of the spending, though, is coming from folks that own a lot of stocks, have benefited from the run-up in AI stock prices. They're much wealthier than they used to be before, and they're outspending that wealth. Most Americans who don't own those stocks, they're holding on. You're right, Dom. They're not cutting back, but they're barely holding on. And they've had to draw down their savings to not to record low levels, but pretty close to kind of maintain their spending. I think we're right there. I mean, I think if oil prices were to continue to push higher here, I mean, we're 100 bucks a barrel.

33:19If you push much higher, I think that becomes very difficult to digest. The other thing to consider is that the impact of the higher oil prices on the consumer has been cushioned, at least up through the summer, by the tax cuts. We did get tax cuts. The refund checks this year were a lot larger than last year. That's the one big, beautiful bill act. But they're in the rearview mirror. They're gone. And so we're still left with these higher energy prices. So, you know, it's the tax cuts kind of delayed the negative consequences. But I think we are there. You know, prices go much higher. If we go one 10, one 20, one three gasoline gets to closer to five dollars a gallon nationwide.

33:55That's going to be pretty hard to digest, particularly in the context of everything else going on, including the higher interest rates. All right. So core measures of inflation are not nearly as high as those headline numbers that include fuel and energy costs. With that in mind, Mark, as we take a look at today's big Fed interest rate decision, in your opinion, in your mind, what does the Fed need to do with anything? Well, they're going to raise rates. I mean, they're in a bit of a box, right? I mean, expectations are firmly that they're going to raise rates, and it would be pretty tough not to at this point unless they really carefully explain why they didn't raise interest rates.

34:35And it doesn't feel like that's a strategy, a communication strategy at the current point in time. So I suspect I think they're going to raise rates. You know, if I were king for the day, I wouldn't raise rates. I mean, I do think the economy is soft. I think the job market is struggling. going. And I think then inflation clearly is a problem. But as you pointed out, it's you know, it's not I don't think it's embedded more broadly into general prices. Inflation expectations remain well anchored. If you look at the break evens, you know, in the bond market, they seem to be exactly where you'd want them to be.

35:09You know, I can see the debate. It's a reasonable debate. But at the end of the day, I would vote for, you know, a hold on policy. But I'm not going to get that. They're going to raise rates today. All right. Mark Zandi, thank you very much for the thoughts. We appreciate it. We'll see you soon, sir. Thanks, Don. All right. A lot more to come here on Morning Call, including a major setback for the crypto industry as landmark regulation hits a major hurdle in Congress. What Coinbase's CEO is telling CNBC about the next steps for the Clarity Act. Morning Call is back after this. All right. Welcome back to a developing story now.

35:37I'm watching the price of Bitcoin this morning. Right now, those prices are off just fractionally, but they're at 75 ,841, so notably below the 80 ,000 mark. This is after the Senate failed yesterday to clear a procedural hurdle for the Clarity Act, becoming in far below the 60 votes needed for Republicans splitting with the rest of their party to oppose the measure, despite a flurry of last minute efforts to strike a deal. Our Garrett Downs caught up with Coinbase CEO Brian Armstrong last night after that vote, talking about the next steps for the crypto industry. At this point, I don't think we can wait on Congress and the Senate.

36:16It's in our interest at this point to go work directly with the SEC and the CFTC. And chairs Atkins and Selig at the SEC and CFTC have made it clear that they have under their existing authority all the tools they need to go publish clear rules for crypto. They've even said publicly, I think, their intention to go out there and start the rulemaking process right away. Now, Republicans who have been working on the legislation say it could be stalled indefinitely pending the outcome of the midterm elections. At issue for those opposing the current bill are ethics rules and concerns about President Trump and his family's involvement in the crypto industry.

36:54Armstrong also weighing in on that ethics issue. There was a very serious proposal from the White House and it that made it into the draft bill that, you know, had real meat behind it. It was it was it had requirements to put into blind trust and state AG authority. I did hear that from some Democrats that thought that it didn't go far enough. But, you know, you have to look at the alternative, which is there's not going to be any ethics language at all if a bill doesn't happen. Maybe not so surprising. We did see crypto stocks sell off late yesterday on word that the bill would not get the support it needed.

37:32Coinbase strategy, others closing down roughly five to 10 percent on the session. And this morning you can see a little bit more of an extension and stability in some cases for that crypto trade. Well, straight ahead for the show, the morning call crew assembles teeing up the trading day ahead and the big rate decision from Kevin Warsh and the Fed. That conversation is coming up. We're back in a moment. All right. Welcome back. It's time for your call sheet where we look at the topics driving the trading day ahead. The crew members assembled today are Lee Baker of Claris Financial Advisors. He's also a member of the CNBC Financial Advisors Council.

38:05We've got Jose Torres of Interactive Brokers, also Brent Kochuba of Spot Gamma. He is also a CNBC contributor. All right, gentlemen, thank you very much for being here. Let's go to our first discussion topic, which has to be, of course, this of all days, the Fed and interest rates. So let's start with you, Jose, as the economist per se on this panel. Should the Fed raise interest rates today? If so, why? If they're not going to, why not? They should absolutely raise interest rates. The bond market, we've seen a meltdown. Fixed demanding that Fed Chair Warsh follow through on his originally hawkish messaging from when he first started in his first meeting in June.

38:46It's been several meetings. Inflation, of course, has started to move the other way in an adverse way to the upside. So Chair Warsh has to come out here, deliver a 25 basis point increase, settle down the turmoil we're seeing in the bond market. I think we're actually going to see a flatter curve. There's a chance that the 10-year comes into 495, 490. And Dom, ideally, if we get some progress on the geopolitical front, we don't have to see a 10 year above 5 % for the rest of the year. Interesting. All right. So, Lee, as we see those interest rates for the benchmark 10 year, which influence a lot of things, car loans, home loans, everything else, credit card rates, mortgage, everything.

39:23How much is the interest rate story a concern for your clients, given the fact that we could see rates on the rise? Is it more hurtful for your clients or better for your clients? It's more hurtful for my clients, right? You know, my clients are, they're spending money. You know, that's what the American economy is based on. And although most of our clients are in good shape from an overall perspective, when we go to discussion around the case part of the economy, but we're hearing those discussions of people that are getting concerned because of where we are and the challenges they're facing.

40:00Again, you mentioned being at the grocery store and driving around. And so all those things are starting to put pressure on people's spending. And as they hear more and more of this information, they're beginning to get worried. And just the dynamic of being worried about things can begin to change behavior. That behavior is interesting because let's look at it, Brent, in your mind and in the data for how it's affecting how traders and investors are positioning as we enter what is by prediction market standards and Fed fund futures standards. not a near certainty, but close to a certainty of a 25 basis point hike.

40:36There are things in the marketplace like ETFs that track the Treasury complex. We know that they've been going down in value for quite some time now as interest rates have risen. What has been showing up in the options market to tell you that things could either be stabilizing or if that downward trend in Treasury prices continues? If you look back about a week or two ago, we were seeing fairly neutral options prices in those liquid bond ETFs. And now we're seeing is a put skew starting to lift. And I think when you saw oil start to really break that$100 level and really start to shift up, you saw the rate hike odds start to increase over the last week with economic data as well.

41:11The put skew started to lift, which is telling us that traders are starting to hedge downside in those ETFs, which is higher yields. And so there's a lot of trepidation, nervousness out there now in that bond ETF complex. So you can see it in the options market playing out there. Because you brought up oil, let's go to our next topic, because that will be oil. and arguably a big driver of that rate story so far. We do see energy's price climb affecting consumer behavior and also prices almost everywhere. Lee, I'll go to you for this one. The story on energy, does it make it one where you own it as a hedge against further price increases, or do you not own it because you think at some point the higher prices will cause destruction and demand and those supply issues will become kind of front and center once again.

42:03Right now, we've got our client portfolios position where there is a lot of ownership, right? So as we're doing these reviews with our clients, we're seeing a couple of things. One, there was ownership in the energy complex. And as we look across the different sectors and how they perform to client portfolios, clearly the energy sector has been stellar this year, to say the least. And so we've had to explain that, yeah, this is a bond year where things are slightly negative. And it's the only thing in their portfolios that are down this year. So we're right now still owners. But at some point, again, I've got the belief clearly at some point this war with Iran will come to an end.

42:40And I think things in the energy sector will start to pull back. And so we'll have to make some decisions about when to get out of that sector. All right. Jose, at what point do those prices really start to crimp the economy? I think that right now where you're seeing the consumer sector this year has been particularly weak. You know, ETF XLY is actually down year to date, despite us being up double digits on most of the major benchmarks. I think oil above 120 is a serious risk for consumer spending in terms of beginning to dial up slowdown risk. However, I think that where we're at right now, around 100, I think, you know, consumers can continue to manage that.

43:18All right. That's an interesting point there. Let's move on now to our next topic and our final one, which is how all this is playing out in one of the key parts of the market outside of energy. And that's that tech AI momentum trade right now. Is there momentum in that AI trade still? Brent, I'll go to you for this one. Are you seeing activity that suggests we could see more downside for those AI stocks or are things starting to show signs of life? Two weeks ago, we saw breakouts in a lot of these tech names. We saw people starting to big calls up in all the big tech names. And things looked a lot rosier, I would say, two weeks ago.

43:52Fast forward a week, last Friday, in particular, we saw a lot of call selling now in the top AI names. A lot of those stocks are starting to trade lower after these NVIDIA earnings. They were good. And then kind of over the next week, we saw that call selling to come in, and those names are getting pressured lower. And that's syncing with the AI doomerism, which is very popular now. And also what we're seeing is a lift in what's called correlation. And what that means is that the rate macro picture is starting to cloud over, I think, some of the upside that people were expecting in tech. Now, if the rate issue and the oil situation kind of subsides and cools down, then I think that tech is really going to get rebid quite quickly, particularly into midterm.

44:26So I don't think that trade is dead yet, but you definitely see a shift in call selling and people focusing on the macro picture. And you can see that through some of these options metrics like correlation. So call selling is not outright bearish, but it is a notch below outright bearish. You're kind of saying, I don't think there's that much upside, but I'm not willing to buy a put outright to just bet on downside. That's right. That does two things. Number one, it monetizes upside. It adds some yields to investors' portfolios. So if you're long some of these tech stocks and saying top AI stocks and saying, hey, this is a nice pop.

44:56I'm going to sell some calls into this to bring a little bit of income. You're betting that the stocks are not going to rally all that much more, right, when you start to sell those calls. All right, Lee, last word to you. Just got a few seconds left here. Any opportunities within that AI trade? Right now on the AI trade, I'm cautious. You know, I think people are looking more for cash flow. So if you're going to look for opportunities, you want to look for those companies that are have the ability to monetize what's going on in the A.I. trade, not just looking at the stories. All right. Lee, Jose, Brent, thank you guys very much for being part of the crew today.

45:29We appreciate it. Have a great day, guys. Thanks very much. We're waiting on the Fed. Thanks for watching. We'll see you tomorrow.

45:45stocks and ETFs. Hmm, that's music to my ears. I can only talk. Investing involves risk, including risk of loss. Zero account fees apply to retail brokerage accounts only. Zero dollar commission does not apply to customers designated by Fidelity as a professional equity trader. A limited number of ETFs are subject to a service fee of$100. See details at fidelity.com slash commissions. Fidelity Brokerage Services, LLC member NYSE SIPC.