US Rates Strategy Daily · Worsening Macro Signal and the Fed ’ s Pivot

Key arguments

• The CPI minus unemployment rate gap has served as a monthly Taylor Rule proxy for over 40 years and has preceded past Fed hiking and easing cycles.
• The current inflation-unemployment mix implies an appropriate, rule-consistent Fed policy rate is rising.
• SMBC's economics team argues this supports further hikes beyond September's 25bp up-move.
• The team had already flagged likely Fed hikes in Spring and Summer notes (May 24, June 24, August 3, August 5).

Corresponding source evidence

1. US Rates Strategy Daily September 21, 2026 Troy Ludtka, US Economics troy.ludtka@smbcnikko-si.com 1 212-224-5483 Worsening Macro Signal and the Fed ’s Pivot In the Spring and Summer, we flagged the likelihood that the Federal Reserve would hike rates due to the worsening inflation outlook (see our notes from May 24, June 24, August 3, and August 5). · 2026
2. Particularly, we are tracking the difference between the consumer price index and the unemployment rate, which has been a monthly proxy for Taylor Rule estimates of the appropriate federal funds rate for more than 40 years and has preceded past Fed hiking and easing cycles.