The White House Thinks the Fed Is About to Hike Into a Slowdown

• Hassett claims three-month annualized core CPI has fallen to 2%, while year-over-year figures still appear elevated, suggesting the Fed may be acting on lagging data
• The policy rate sits at 3.75% (unchanged since early 2026), with the 10-year minus 2-year Treasury spread narrowing to 0.33% from 0.51% in May
• SPY remains up 11.07% year-to-date but down 2.44% over the past month, with mega-cap holdings like NVIDIA (7.58%) and Apple (6.66%) facing higher discount rate risk if the Fed tightens further

Summary

Key Facts and Developments

White House National Economic Council Director Kevin Hassett argues that inflation has already cooled, presenting statistical evidence ahead of a Federal Reserve meeting. He claims core CPI has fallen to 2% when measured over the last three months and annualized, despite year-over-year figures remaining elevated.

Market Context

• S&P 500: 7,617 (+0.13%), down 2.44% over past month but up 11.07% YTD
• Dow Jones: 52,221 (+0.06%)
• Nasdaq: 29,105.70 (+0.31%)
• Current Fed rate: 3.75% (unchanged since early 2026, down from 4.5% in September 2025)
• Treasury spread: 10-year minus 2-year narrowed to 0.33% from 0.51% in May

Key Companies

Top S&P holdings include NVIDIA (7.58% weighting) and Apple (6.66%), making the index vulnerable to rate changes affecting long-duration growth stocks.

Market Implications

The central tension: Hassett's three-month data suggests inflation momentum has shifted, but the Fed may rely on lagging twelve-month averages, potentially hiking rates into an economic slowdown.

Bull case: If the Fed eventually cuts based on cooling inflation, growth stock multiples expand with lower discount rates.

Bear case: Rate hikes into slowing growth historically compress equity multiples, particularly problematic given the flat yield curve and consumer spending increasingly dependent on wealth effects rather than wage growth.

The article notes Hassett stopped short of explicitly recommending the Fed hold rates, framing his argument as a "hypothetical dissenter's" position—reflecting the political sensitivity of White House commentary on Fed policy.