Macro Outlook — Inflation, Rates & Equity Valuation

A standing quantitative model of US inflation and its implications for the risk-free rate and fair equity valuation, plus a compact Europe & world readout. Each update loads the prior model state, refreshes it with sourced data, and reports what changed. Updated with sourced data roughly monthly.

Companion edition: Macro Outlook Europe

Report date: 2026-09-19 · Analytical framework output — educational tool only, not financial advice. Do your own research.

MACRO MODEL UPDATE — 2026-09-19 (prior run 2026-08-20)

1. WHAT CHANGED SINCE THE PRIOR RUN

Surprises vs the prior state

The Fed hiked. FOMC raised the target range to 3.75%–4.00% on 2026-09-16, vote 12-0 with no dissents (prior run: held at 3.50%–3.75%, 9-3). The new SEP has median fed funds 4.1% (2026), 4.1% (2027), 3.9% (2028), 3.6% (2029), 3.2% longer run; 16 of 18 officials see at least one more 25bp hike by end-2026; core PCE 3.4% (2026), 2.5% (2027), 2.2% (2028), 2.0% (2029), headline PCE 3.7% (2026); real GDP 2.3%/2.4%/2.2%/2.1%/2.0%; unemployment 4.1% throughout. Futures had priced >90% odds of the hike. Pricing for the next three meetings is absent from the clippings — no substitute number this run.
Inflation re-accelerated at the margin. August CPI +0.40% MoM / 3.4% YoY; core +0.29% MoM (3.5% annualized) / 2.4% YoY; core services +0.33% MoM (4.0% annualized), 3.0% YoY; supercore +0.31% MoM (3.7% annualized), 3.1% YoY (alt reading 2.99% YoY, "accelerated slightly"). September nowcasts: CPI 3.43%, core CPI 2.39%, PCE 3.89%, core PCE 3.49% YoY; Q3 SAAR 1.35% CPI / 2.16% core CPI / 2.44% PCE / 3.00% core PCE (core PCE SAAR up from 2.91% at the prior run). July index levels only (core PCE 130.658, headline PCE 131.659) — no new PCE YoY print; the prior June readings (3.3% core / 3.7% headline) stand as the last actuals.
Long rates broke higher. 10Y 4.94% (2026-09-17) vs 4.71% at the prior run (+23bp); the 10Y traded above 5% intraday and 4.958% post-announcement, with the 30Y at 5.312%–5.36%. 2Y absent — carried forward at 4.19% (2026-08-18), STALE and almost certainly obsolete after a 25bp hike. Breakevens: 10y 2.34% (9/2, from 2.30%), 5y 2.25% (8/17, from 2.28%), and 5y5y 2.34% (9/10) — new series (unavailable at the prior run).
Oil repriced sharply higher. WTI $100.88 and Brent $103.77 (9/18) vs $85.81/$91.87 prior; WTI $107.02 (9/15), $101.27 (9/11), $91.48 (9/1). One forecast note quotes WTI $96.35 on 9/18 — dispersion flagged. Driver: fresh Saudi–Houthi cross-border strikes and damage to three East–West pipeline pumping stations.
Equity multiples compressed. Forward P/E 19.1x (9/11) vs 20.00 prior; trailing P/E 25.9x (9/11) vs 26.49 prior. Latest sourced index level is 7,686.14 (2026-08-31) — no September level in the clippings, so the level is stale by ~3 weeks; NTM EPS $394.16 (8/31), trailing EPS $292.00 (8/31); Q3 bottom-up EPS estimate $89.91, up from $88.64 on June 30. Equal-weight forward P/E unavailable.
Tariffs: two-sided. US effective tariff on Chinese imports 22.8% (July), steel/aluminium 40.5%, with US–China talks on reciprocal cuts of ~$30bn of goods each side and possible removal of China's 15% LNG tariff ahead of the Sept 24 Xi visit. The overall US effective tariff rate is absent — carried at 7.1% (June), STALE.
AI capex: data-center plans pointing to continued rapid growth in AI-linked business investment; no cuts or writedowns in the clippings. Absent and carried stale: CPI electricity, shelter CPI, average hourly earnings, immigration/labor-supply policy, China PPI/export prices, Treasury deficit/issuance news.

Ledger changes (all ≥ ±0.05pp listed)

Force	Horizon	Prior → New	Justification
Geopolitical mean	3y	0.20 → 0.25	WTI/Brent up ~$15/$12 to $100.88/$103.77 with Saudi–Houthi strikes and pipeline pumping-station damage.
Geopolitical mean	5y	0.10 → 0.15	Same shock, now with damaged export infrastructure rather than a pure flow disruption.
AI buildout	3y	0.25 → 0.30	Data-center plans imply continued rapid growth in AI-linked investment, high-tech investment rising rapidly.
AI-bust overhang	3y	−0.15 → −0.10	No capex cuts, cancellations or writedowns in the clippings; less near-term disinflationary overhang.
Demand/output gap	3y	−0.25 → −0.20	SEP medians: 2.3%/2.4% real GDP with unemployment flat at 4.1%, and Aug core services CPI at a 4.0% annualized pace — less slack than assumed.

Scenario changes: B 0.24 → 0.21 (−3pp): unanimous 12-0 hike, 16/18 dots seeing further tightening and a 10y breakeven of 2.34% (well below the 2.6% trigger) all argue against near-term fiscal-dominance/debasement; A absorbs the residual at 0.54. Scenario A's central inflation is re-marked from ~2.8% to ~2.9% to keep ledger and scenario paths inside the 0.15pp cross-check, reflecting August core-services reacceleration and SEP core PCE of 2.5% in 2027 with 2% not reached until 2029. C held at 0.15, D at 0.10.

Verdict: model moved — 3y ledger inflation up 0.20pp, fair 10Y up 5bp, actual 10Y up 23bp, fair-vs-market gap now inside the tolerance band.

2. CONCLUSION FLIPS

FLIP — fair-vs-actual 10Y gap back inside ±50bp. Gap now −46bp (fair 5.40% vs actual 4.94%) from −64bp; the breach flagged at the prior two runs is resolved, driven by the 23bp rise in the market 10Y.
No other flips: E[π,3y] ledger 2.90% (did not cross 3.0%); forward P/E gap +19% (inside 0–25%); bonds still ahead of stocks at 3y and stocks still ahead at 10y; only scenario A above 35% (0.54, already above at the prior run).

3. UPDATED TABLES

Force ledger (pp on top of a 2.0% core PCE anchor)

Force	3y	5y	10y	Δ3y
Fiscal/debt premium	0.45	0.50	0.55	—
Shelter (stale input)	0.15	0.15	0.10	—
Immigration/labor supply (stale input)	0.20	0.20	0.15	—
AI buildout	0.30	0.15	0.05	+0.05
Climate/insurance/grid	0.10	0.15	0.20	—
Healthcare	0.10	0.10	0.15	—
Deglobalization/tariffs	0.05	0.10	0.10	—
Demographics	0.00	0.10	0.20	—
Geopolitical mean	0.25	0.15	0.05	+0.05
AI productivity	−0.25	−0.40	−0.60	—
AI-bust overhang	−0.10	−0.05	0.00	+0.05
China goods deflation (stale input)	−0.05	−0.10	−0.10	—
Tech baseline deflation	−0.10	−0.10	−0.10	—
Demand/output gap	−0.20	−0.05	0.00	+0.05
Sum of forces	+0.90	+0.90	+0.75	+0.20
E[core PCE] = 2.0 + sum	2.90	2.90	2.75	+0.20

Arithmetic, 3y: positives 0.45+0.15+0.20+0.30+0.10+0.10+0.05+0.00+0.25 = 1.60; negatives −0.25−0.10−0.05−0.10−0.20 = −0.70; net +0.90 → 2.90. 5y: 1.60 − 0.70 = +0.90 → 2.90. 10y: 1.55 − 0.80 = +0.75 → 2.75.

Scenarios

ID	Name	π (core PCE)	p (prior)
A	Grind-down	~2.9%	0.54 (0.51)
B	Fiscal dominance / debasement	~4%	0.21 (0.24)
C	AI capex bust (recession)	~1.4%	0.15 (0.15)
D	AI productivity boom	~1.8%	0.10 (0.10)

Scenario-weighted 3y: 0.54×2.9 = 1.566; 0.21×4.0 = 0.840; 0.15×1.4 = 0.210; 0.10×1.8 = 0.180 → 2.796 ≈ 2.80%. Ledger 2.90% vs scenario 2.80% → 0.10pp apart, inside the 0.15pp cross-check.

Dispersion: variance = 0.54×0.10² + 0.21×1.20² + 0.15×1.40² + 0.10×1.00² = 0.0054+0.3024+0.2940+0.1000 = 0.7018 → σ = 0.84pp. With a 0.40pp within-scenario sd: P(π>3%) ≈ 0.43 (0.216 from A + 0.209 from B), P(π<2%) ≈ 0.22 (0.140 from C + 0.069 from D + 0.007 from A).

Fair 10Y build

Component	Value
r*	1.45% (unchanged; SEP longer-run funds 3.2% with 2.0% inflation implies ~1.2% — model holds the low end of 1.4–1.5)
Expected CPI (10y model PCE 2.75 + 0.30 wedge)	3.05%
Term premium	0.90% (raised from 0.85: σ 0.84pp, 30Y at 5.31–5.36%)
Fair 10Y	5.40%
Actual 10Y (DGS10, 9/17)	4.94%
Gap (actual − fair)	−46bp (prior −64bp) — inside ±50bp
Model expected CPI vs 10y breakeven 2.34%	model 71bp above the breakeven (prior 75bp)

Fair forward P/E (three methods)

Method	Computation	Fair fwd P/E
(a) Gordon	0.70 / (5.40 + 3.75 − 5.05) = 0.70/0.0410; nominal growth = SEP longer-run real GDP 2.0 + expected CPI 3.05	17.1
(b) Rule of 20	20 − 3.4 (Aug CPI YoY) = 16.6 trailing; ÷1.12 EPS-growth conversion (factor carried from prior run — no clean NTM growth in clippings)	14.8
(c) Inflation-regime median − vol turns	3%-handle CPI regime median less ~1 turn for elevated σ (0.84pp), carried at prior level	16.5
Average	(17.1 + 14.8 + 16.5)/3 = 48.4/3	16.1

Actual forward P/E 19.1 is ~+19% above the model-average fair forward multiple of 16.1 (prior +23%).
Fair trailing multiple = 16.1 × 1.12 = 18.0; actual trailing 25.9 is ~+44% above it (prior +46% on 26.49 vs 18.1).
Implied ERP: 0.70/19.1 = 3.67% payout yield + 5.05% nominal growth = 8.72% expected return; −4.94% actual 10Y → 3.78%; −5.40% fair 10Y → 3.32%, against a 3.5–4% norm (prior 3.84%/3.20%).

Asset-return matrix (from forward P/E 19.1, 10Y 4.94%, 1.2% dividend yield, ~7.2y end duration)

Scenario	p	10Y yield (3y)	Terminal fwd P/E	EPS/yr	Stocks 3y/yr	10Y Tsy 3y/yr
A Grind-down	0.54	5.10%	17.0	+7%	+4.1%	+4.6%
B Debasement	0.21	6.00%	14.0	+8%	−1.4%	+2.4%
C AI bust	0.15	3.50%	16.0	−2%	−6.4%	+8.4%
D Productivity boom	0.10	4.50%	20.0	+12%	+14.9%	+6.0%

Weighted 3y stocks: 0.54×4.1 + 0.21×(−1.4) + 0.15×(−6.4) + 0.10×14.9 = 2.214 − 0.294 − 0.960 + 1.490 = +2.45 ≈ +2.5%/yr. Weighted 3y bonds: 0.54×4.56 + 0.21×2.40 + 0.15×8.40 + 0.10×6.00 = 2.462 + 0.504 + 1.260 + 0.600 = +4.83 ≈ +4.8%/yr. → bonds ahead by ~2.3pp (prior 2.7pp).

10y horizon (valuation drag amortized over 10 years; EPS 6%/7%/3%/9% in A/B/C/D): Stocks — A: (1.06^10 × 17.0/19.1)^0.1 − 1 + 1.2% = 6.0%; B: 4.9%; C: 2.4%; D: 10.5%. 0.54×6.0 + 0.21×4.9 + 0.15×2.4 + 0.10×10.5 = 3.240 + 1.029 + 0.360 + 1.050 = +5.68 ≈ +5.7%/yr. Bonds — A 5.0%, B 5.5%, C 4.3%, D 4.7%: 0.54×5.0 + 0.21×5.5 + 0.15×4.3 + 0.10×4.7 = 2.700 + 1.155 + 0.645 + 0.470 = +4.97 ≈ +5.0%/yr. → stocks ahead by ~0.7pp (prior 1.5pp), ranking unchanged.

4. EUROPE & WORLD

Euro area. ECB deposit rate 2.25% (9/19), MRO 2.40%, marginal lending 2.65% — unchanged vs prior; a second page from the same provider quotes 2.00%, discrepancy flagged, 2.25% used. Headline/core HICP YoY are not stated in the clippings (only the HICP index, 103.22, 2015=100) — carried at 2.9%/2.5% (July 2026), STALE. Market pricing of the next ECB move is unavailable this run (the prior carried ">90% Sept hike" note is dropped as unverifiable); ECB September staff projections assume the euro-area 10Y government yield at 3.1% (2026) rising to 3.5%/3.8%/4.0% in 2027–29 and EUR/USD at 1.13 (2026), 1.16 (2027-29). 10Y Bund 2.97% (9/19) — a fresh print that resolves the prior disputed 3.25%/2.17% pair, and sits ~28bp below the carried figure. BTP-Bund spread unavailable — carried ~80bp, STALE (no ≥20bp move can be confirmed). For European-listed issuers: financing benchmarks are anchored well below US ones (Bund 2.97% vs UST 4.94%), while staff projections embed a steadily rising cost of long-term euro debt through 2029.

Switzerland. CPI 0.8% YoY (August), up from the carried 0.4% (July) and 0.6% (May); SNB policy rate 0.00% (18 June 2026 assessment). EUR/CHF unavailable — carried 0.9334 (20.08.2026), STALE; the only USD/CHF datum is a consensus target of 1.075 (range 1.04–1.12), which is not reconcilable with the prior spot of 0.7979, so the prior spot is carried STALE and the forecast is flagged as disputed. Strong-franc pressure can therefore be neither confirmed nor refuted this run; Swiss exporters' translation effects remain the open variable.

UK. CPI 3.1% YoY (August), up from 2.9% (July); core unavailable — carried 2.6%, STALE. Bank Rate held at 3.75% on 16 September, 6-3; the September Market Participants Survey median sees 3.75% through mid-2027, with a 4.00% 75th percentile later. Gilt 10Y not in the clippings — carried 3.68%, STALE. UK-listed firms face an unchanged policy rate with headline inflation drifting up 0.2pp.

Japan & China (global forces). BoJ raised to 1.25% (18 September, 31-year high, two dissents), up from the carried 1.00%; USD/JPY 156.91; 10Y JGB unavailable — carried ~2.85%, STALE. A second BoJ hike with repatriation risk keeps upward pressure on global long yields, consistent with the 23bp rise in the US 10Y and the 30Y above 5.3%. China: no PPI/export-price data this run (goods-deflation force unchanged), but the US effective tariff on Chinese goods is 22.8% (July) with reciprocal cuts on ~$30bn each side under discussion before the Sept 24 summit — a two-sided input for European importers' landed costs and for competition from redirected Chinese goods.

5. BOTTOM LINE

Inflation firmed: the ledger now carries 2.90% core PCE at 3y and 5y and 2.75% at 10y (scenario-weighted 2.80% at 3y, σ 0.84pp, P(π>3%) ≈ 0.43), with August core services running at a 4.0% annualized pace, Q3 core PCE nowcast at 3.00% SAAR and the Fed's own SEP not reaching 2% until 2029. Probability-weighted expected returns are stocks +2.5%/yr vs bonds +4.8%/yr at 3y (bonds ahead by ~2.3pp) and stocks +5.7%/yr vs bonds +5.0%/yr at 10y (stocks ahead by ~0.7pp, narrower than the prior 1.5pp); the fair 10Y of 5.40% is 46bp above the market's 4.94%, back inside the tolerance band, and the forward multiple of 19.1 sits ~19% above the model-average fair 16.1. The grind-down tail grew (A 0.51 → 0.54) while fiscal dominance shrank (B 0.24 → 0.21) on the unanimous hike; the standing asymmetry is unchanged — nominal Treasuries hedge scenario C only, scenario B damages stocks and nominal bonds together with stock-bond correlation positive above ~3% inflation, and TIPS/short duration are the instruments that hedge B.

6. SOURCES

±0.05-0.10pp precision on all weights; this is analytical framework output, not financial advice.