Q+A: The Week Ahead | 21 Sep 2026

Welcome to Fear and Greed Q&A, where we ask and answer questions about business, investing, economics, politics, and more. I'm Michael Thompson, and every Monday morning we are joined by economist Stephen Koukoulis to look at the week ahead. You'll find him at thekouk.com, T-H-E-K-O-U-K.com, and sharing his views on LinkedIn as well. Stephen, good morning. Very good morning, Michael. Now, this week, Stephen, we've got labor force figures coming out on Thursday, and we will get to that in a minute. But I need to talk to you first about everything that took place last week, because it has been a massive couple of weeks broadly in terms of bond markets. all of that upward pressure on bond yields suddenly eased. Why? Because of the US Fed lifting interest rates. And I just, I need you to explain this to me because normally lifting interest rates would probably mean the opposite thing for bond yields, right? But this was kind of more about Kevin Walsh as the new Fed chair, almost gaining the confidence of the market, would you say? Yeah.

Yes, I think that's, in a nutshell, a good summary, because what was happening in the bond market in the US, but also globally to a point, was a concern that central banks weren't hiking to contain inflation. Inflation had been stubbornly above the target range. And let's just focus on the US again, because that's where the sort of the central point, if you like, of global bond market yields are sort of sourced from. The fact that inflation had been so high for so long, I think it's now five years plus since the Fed has met its inflation target, with inflation moving higher yet still, it had been three years since we'd had a Fed interest rate hike, And we'd also had the ongoing, what do we call it, ructions in Iran and with the oil prices still at about $100 a barrel plus plus, that the market wanted to see, if you like, the Fed coming out, putting aside the rhetoric of Donald Trump and saying, look, we are fair dinkum about containing inflation and that means we're going to hike interest rates. without fear or favour, and to sort of use that higher interest rate setting to cool the US economy down. And with that, rebuild our inflation credibility, which had been sort of pretty fragile in the last six months, it must be said.

Okay. So what happens then if central banks aren't credible? What is the bigger long-term

risk? If central banks take their eye off maintaining their inflation credibility, you get what we call capital market dislocation. And that's a sort of over-encompassing sort of phrase for a lack of concern in the banking sector about who they lend to and who's creditworthy. Because if the US government isn't credible, the Fed's not credible. Well, who's to say company XYZ when they need to tap the capital markets? And of course, the other thing in recent months has been the AI and AI-related companies borrowing lots of money to fund their expansion. So they're sort of at the cusp of this uncertainty about Fed economic policy, monetary policy. So you get this lack of confidence in the economy. Consumers and businesses react to that by thinking, gee, inflation, instead of hanging around 2%, 2.5%, it's