Fed Moves, Inflation Watch, & A Subtle AI Shift Starts - September 2025 Wealth Management Update:

September 1, 2025

John Browning, MBA and CSA® | CEO, Principal

It was just past 7 a.m. on a Monday when a longtime client, a seasoned and busy executive with two decades of C-suite experience, called during his commute. “I skimmed three headlines about the Fed, inflation, and some bad news about chip stocks,” he said, “but I don’t have time to connect the dots. You’ve got this right?” 

This isn’t unusual. I reminded him that I record and send out the daily market update every morning the markets are open, covering all of this. However, it typically comes out around 8:30, just before the market opens. Still, I get it; he is already busy at work by that time. While I have done this every day for three decades, he's been doing what he does for almost as long.  He needs to be sure that “I’ve got this for him so he can do what he does best while I do what I do best; preparing, not reacting, not to the headlines and hype, but to the undercurrents moving the markets.

Whether you're managing a business, leading a team, or just trying to keep up with strategy meetings and client deliverables, the market moves fast, and the noise can be deafening. Headlines often miss what’s really happening beneath the surface and can steer you in the wrong direction.

That’s exactly what this month’s market update aims to fix.

The Bottom Line At The Top:

Key Takeaways:

• Inflation may be stickier than headlines suggest, don’t let 2.7% CPI fool you.

• The Fed is likely preparing to pivot, but cautiously, expect rate cuts, not slashes.

• Bond yields may seem to offer opportunities, but there may be better options for cutting-edge investors.

• A sector rotation within a sector may be forming, look downstream in AI what served you well in the past may not serve you as well going forward.

• Disciplined processes and consistency beat reaction. Asset allocation and cash flow matter more than headlines.

  
  

We’re at a point in the cycle where patience, preparation, and perspective will serve you better than any hot tip or bold prediction. Whether it's inflation erosion or AI sector evolution, the markets are quietly shifting; don’t let noise disguise the signal.

Staying diversified and holding quality assets is key. Remember that rebalancing with purpose does not go out of style, and neither does consistent cash flow generation.   It is not always about beating the market but instead protecting gains and generating what becomes the lifeblood of your portfolio, which is cash flow.

📉 Powell Speaks: Fed Signals a Likely Rate Cut

One of the most talked-about events in August was Fed Chair Jerome Powell’s speech at the Jackson Hole Economic Symposium. Unlike in previous years, when ambiguity prevailed, this time Powell was slightly more direct, saying that the Fed is open to an interest rate cut, possibly as soon as September.

Why now?

While inflation remains above the Fed’s 2% target, the job market is showing signs of fatigue. The July jobs report came in at just 73,000 new jobs, well below expectations, and prior months were quietly revised downward. This prompted Trump to fire the Director at the Bureau of Labor Statistics and install someone more favorable to the current administration. However, the data, flawed as it may be, indicates that the employment engine, though still humming, might be starting to sputter.  One of the things I often remind people of is that when consumers work, they go shopping, and that is the primary driver of the economy, which is why we closely watch the trends. 

Powell's message emphasized the Fed’s dual mandate: price stability and maximum employment. With inflation holding steady but not rising dramatically, the Fed may see a window to ease rates without stoking inflation; however, the personal consumption numbers this Friday did not show that consumers were slacking off too much on their job of driving the economy forward.  Note: We still expect a Fed ease in September.

🏦 Why Fed Credibility Still Matters

The often-overlooked aspect of monetary policy is that it is not just about the Fed's actions, but also about whether markets trust them.

When the Fed lost credibility in the 1970s, inflation ran rampant, and long-term interest rates skyrocketed as bond investors demanded higher yields to offset risk. Compare that to the post-2008 era, when even delayed Fed action didn’t shake confidence and inflation stayed subdued.

Today, bond markets still believe in the Fed’s playbook. Corporate bond yields and credit spreads have tightened significantly, especially in high-yield markets. This suggests that investors aren't concerned about systemic risks and are confident in the central bank’s ability to engineer a soft landing.

💸 Inflation Is Still Sneaky and Sticky

While some inflation indicators have cooled, others are showing renewed signs of pressure. Take the Producer Price Index (PPI), which spiked 0.9% in July, the highest monthly gain since mid-2022. That’s not a typo. Goods prices rose 0.7%, and services jumped 1.1%. That’s the upstream data. The downstream, via the Consumer Price Index (CPI), showed more moderate growth at 2.7% YoY, but core CPI remains sticky at 3.1%.

Where are consumers feeling the pinch?

• Restaurant meals: +3.9% YoY           (Discretionary)

• Medical care: +3.5%                           (Nondiscretionary)

• Car insurance: +5.3%                         (Nondiscretionary)

• Furniture: +3.4%                                 (Discretionary)This is what I call “erosion-style inflation”—not a headline-worthy explosion, but a slow, steady squeeze on your purchasing power.

  
  

And yes, tariffs and changes in tax law continue to muddy the picture. If they continue to ramp up, expect more of this “slow-motion tax” on consumers and businesses alike.  That is not a political statement; it is simply a matter of money flow and economics, which occur before potential efficiencies can take place over a longer time period. 

📈 Opportunities and Risks in Bonds & Equities

Despite all the noise, bonds have performed relatively well. The U.S. Aggregate Bond Index is up 4.8% YTD, helped along by rising bond prices as rate cut expectations have grown.

While some find yields attractive, I would encourage you to calculate your taxes on the income being generated and further to subtract inflation.  I believe you will find that a 4% yield gets you nowhere fast. 

• Treasurys: ~4.0%

• Investment-grade corporates: ~4.9%

• High-yield: ~6.9%

Perhaps exploring more innovative cash flow-producing instruments would serve many better than bonds. 

🤖 AI Stocks: Is A Slow, Subtle Rotation in Motion

I don’t see many talking about this yet, but being prepared rather than reacting is a consistent theme here at Guardian Rock Wealth:   We may be on the edge of a sector rotation within the sector itself.  I am referring to the technology sector, which continues to bleed into nearly every sector in the market.

For most of the past year, the spotlight on AI has been squarely on semiconductor giants like Nvidia, AMD, and Broadcom. However, recent earnings reports and performance patterns suggest that investors may be becoming more selective.  Not that I am suggesting anything is particularly wrong in the semiconductor space, but margins have been slowly increasing at a decreasing rate, even as sales have continued to skyrocket, indicating to me a possible maturing of the subsector.

We may be just beginning to see increased interest in companies that apply AI successfully to solve real-world business problems, even in the most boring of industries.

This rotation doesn’t mean chipmakers are done, far from it, but it may suggest the larger opportunities may lie elsewhere in the coming months.  For forward-looking investors, it's worth asking: Where does AI currently generate profit margin, and where will it begin generating more profit in the next year?

💼 Long-Term Strategy for Executives & Owners

For business owners and executives, this isn’t about market timing or reacting to the news. It’s about preparation and positioning. Just like in your own business, you find the root of the problem or the key indicators that show you where to position resources for the most success moving forward.   The same applies to wealth management.

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