Oil Remains Primary Risk Driving Higher Rates Says Haworth

Oil Remains Primary Risk Driving Higher Rates Says Haworth

Bloomberg

Fri, September 18, 2026 at 10:00 PM GMT+3

Treasuries fell as anticipation of additional Federal Reserve interest-rate hikes stoked interest in wagers on rising yields for short-maturity debt. Rob Haworth, Senior Investment Strategy Director at U.S. Bank Asset Management joins Bloomberg Businessweek Daily to discuss the markets as well as how the oil is driving rates higher.

00:00 Speaker A

Bloomberg opinion editors out with uh a column today about how Fed Chair Kevin Warsh had ground to make up on Wednesday and for the most part did what was necessary. What was your view there?

00:21 Rob

Yeah, I think the Fed has a battle against inflation that they've they've got to do and the market has come around to that to that idea. So they have I I think we have to take him at his word that he has accommodation to hand back, right? And and we've taken away some of the accommodation rather than tighten the the market yet, so.

00:46 Speaker A

Was it a a day for I mean we told we were we were out at Future Proof in in Huntington Beach and and really a theme there seemed to be that this was a Fed that asserted its independence and and showed its credibility. Do you agree?

01:06 Rob

Yeah, no, I I think the unanimity amongst the committee was really important. And I think we got a glimpse of Chair Warsh's reaction function too, right? I thought it was very telling that he was very worried about the dispersion of inflation around the economy, right? With so many the the large proportion of CPI components trailing at at above 3% annualized growth, right? So, so I think this is a committee that is established its view that it it's going to be uh emphatic against inflation and we're seeing that show up in bond prices, right? It's it's interesting me. I was looking through some of our data uh just this morning and we're not seeing a move on inflation expectations at the 10-year level. Where we've seen the move is in real yields, right? The market is taking them at their word that they're going to do enough to battle inflation. That doesn't get us over the hump just yet, but it but it does tell me the market has conviction that we're doing the right thing.

02:22 Speaker C

What's that battle by the Fed look like for you? Is it another hike? Is it a couple of more hikes?

02:27 Rob

I think we can take the market at its word that it's it's two or three by the time we get to mid next year. I you know, I I know odds are 50% for for October. You know, 90% that we get another by year end. you know, I I think we can take the market at its word. I think the good news for us is as we look across all those components of CPI, a large majority of them are trending the right direction, right? The challenge right now, as you highlighted earlier, diesel costs up, right? That's and that's a problem across the goods industry. Uh as well as uh agricultural prices are up, right? So we we've got to pay attention to those things. We need to see those start to stabilize.

03:41 Speaker C

Is there any trouble? I mean, we look at the labor market, so far, so good. But I mean, if that starts to come undone, the the Fed's going to be in a tricky place.

03:54 Rob

a very clear worry for us that we have to watch. And that's why uh yesterday's jobless claims number was so important at 196,000. It tells us we need we need labor. We need laborers, right? And and they're we're not letting go of who we have. So I think this is a solid labor market, not spectacular, but solid maybe enough to hold that base of the pyramid and get us into that AI investment cycle that continues.

04:40 Speaker C

Just throw one more economic statistic at you. Retail sales coming in very strong. Does it fit with the rest of the economic picture in your view?

04:54 Rob

Uh it yes, it does. right? And and it does because uh if you if you right part of the challenge with retail sales is inflation's included in that number. You start backing out inflation and it still looks good. I mean that's kind of the good news we take from it is is you back that out and consumers are able to maintain their spending baskets.

05:22 Speaker A

Uh Rob, I want to go back to energy because I was struck in our editorial call this morning our producer is bringing up the the talking points that you sent and it was really energy focused. I'm getting some feedback right now from uh one of our loyal audience members who says that so much of the sentiment around gas price rise is media led. I said, okay, I'll bite. I'll bite on this.

05:46 Speaker C

Why do you always blame us?

05:49 Speaker A

But I love you.

05:51 Speaker A

but I will I will take I will take the the the criticism. Are we are we as media doing too much on this or are are do you think you think this could be something that erodes consumer sentiment?

06:05 Rob

Yeah, I know I I think it's a challenge, right? I mean we go back to oil prices. oil prices are set every day by what we need and what we use. Supply and demand, right? Right? And I mean that is how they are set every day and so uh I have a hard time blaming those of us talking about it when you know, we have by by the way, we go back to the employment date. very solid employment. What do we have to do? We have to travel using oil, natural gas, gasoline, diesel prices, right? I mean, we have to use it and that's what's driving it. and supplies are dwindling, right? I mean we look at strategic petroleum reserve. That's the lowest since 1983. You're seeing uh commercial inventories, right? below the five-year average. So we're being told we don't have quite enough.

07:11 Speaker C

Let's talk earnings for a moment because when it comes to earnings, they have been on fire. Uh, according to Goldman Sachs strategist, profit growth is likely to slow rather than collapse as AI driven productivity provides support. Where are you on earnings?

07:32 Rob

Yeah, it's been it's been great and we think things continue through 2027. I it it's hard to see this in

07:38 Speaker C

All the way through 2027?

07:39 Rob

It's hard, right? I mean, I mean, well we well we've got 30% earnings expectations on the S&P 500 for 2026. It's 14% I think is where consensus is for 2027. You know, slower? Yes, bad? No, right? Not enough to.

08:00 Speaker C

They all AI driven? Like what what drives it?

08:03 Rob

I mean, tech is tech is at the top of the heap, certainly. But you look at earnings so far this year, energy has been a great place to be both from an earnings and a performance perspective. And you're seeing that story broaden out, right? You're seeing healthcare earnings start to tick higher. You're seeing small cap earnings start to get better and earnings expectations start to get. To us that's the good news is this is not a one sector story anymore, right? You are seeing some breadth and so that gives some durability to this market. Doesn't mean there won't be volatility, right? With a Fed hiking rates, there's going to be volatility, but they there's durability to this. And I think about this year alone, right? If you think about the last nine months of this year, it you you look at the performance for the S&P 500 and international stocks and and you wake up today, it was great. But those of us who have lived it, it has been a rough year and and hard to believe we're still making double digits in our equity portfolios this year.

09:13 Speaker A

So on the AI side of things, uh, wondering about the the widening of of the beneficiaries of AI. The idea that companies that are not necessarily the picks and shovels or the direct participants are actually going to see productivity gains. What do you see there?

09:40 Rob

it's early. And I think that's a hard. it's it's still you know, we're hoping we get more news. It's a lot of money and I think in third quarter earnings we need to see start to see some more data. But I think, you know, some of the statistics and surveys we've seen is there's a lot of use and not a lot of quantification yet of the benefits. But the the sense is it's going to be there, right? And I and I think I think we have to give room for this growth story to happen because it's going to be built. There it's a it's a massive global competition and it's going to be used, right? We're we're all seeing benefits every day. Um I've not asked you if you're using a lot personally. I'm starting to use it more personally and in business, right? Both and so

10:29 Speaker C

I used it a bunch today for some different things.

10:33 Rob

Right. And and so I I think from a business perspective we're seeing that, but it's going to take time to get the quantification. I think, you know, healthcare is a good example of some in an industry that's early, right? They're they're early, we're seeing some good benefits there. I think everyone else has some room room to run to quantify it and it's it's I think we'll see some news in third quarter earnings that starts to give us confidence.

10:52 Speaker A

I'm ready to get the flu flu shot from the robot.

10:54 Speaker C

Are you?

10:54 Speaker A

Yeah.

10:55 Speaker C

I'm okay if the robot knows how to give a shot like nicely.

10:58 Speaker A

Yeah.

10:58 Speaker C

Cuz that would be nice. I've had some humans not give it such a great.