Every month, the same ritual plays out. A specific number lands at 8:30 a.m. Eastern - the much anticipated CPI print - and within minutes, financial media has already decided what it means for the next Fed meeting, the next rate decision, the next leg of the market. Yesterday was one of those mornings. July's CPI came in at 3.4% year-over-year, with core inflation at 2.5% - cooler than June, still above the Fed's 2% target, and, predictably, already being parsed for what it implies for September.
It is a familiar cycle, and an understandable one. Inflation and interest rates touch almost everything: borrowing costs, corporate margins, bond yields, the discount rate applied to future earnings. It makes sense that investors want to know where they're headed. The trouble is, however, that almost nobody - including the people whose full-time job it is - can tell you with any consistency.
The Fed's own July meeting made that plain. The Federal Open Market Committee ("FOMC") voted to hold rates steady for a fifth consecutive meeting, keeping the target range at 3.50% to 3.75%. But the vote wasn't unanimous. Three regional Fed presidents dissented, preferring to raise rates instead - an unusually public split on a committee that is supposed to be reading the same data. If the people sitting in the room, with access to every input and data point the Fed collects, can look at that data and land in different places, it says something about how genuinely uncertain the path actually is. It is not a forecasting problem waiting on better information. It is close to an irreducible one.
That uncertainty is exactly what makes positioning a portfolio around the next CPI print, or the next Fed decision, such a difficult game to play consistently. Being early or late by even a few months on a rate call can mean missing the strongest part of a market move, or holding through the weakest part of one. Multiply that across a full cycle of meetings and data releases, and the odds of getting each turn right, in sequence, become very long. This isn't a comment on where rates or inflation go from here. It's a comment on how hard that question is to answer reliably enough to trade around.
We don't try to. Not because macro doesn't matter, but because we think there's a more useful place to put our attention. Interest rates and inflation influence the environment businesses operate in, but they don't create the value inside those businesses. That comes from what a company actually earns, how efficiently it's run, and whether that earning power grows over time. Rate cycles come and go; a business's ability to compound its earnings is what ultimately gets reflected in its stock prices over the long term - long after any single Fed meeting has been forgotten.
That's the distinction we keep coming back to. A rate decision or an inflation print can move markets in the short run, sometimes sharply, and often for reasons that have little to do with what any individual business is actually worth. But over the long term, prices tend to follow earnings. A company that steadily grows what it earns tends to see that reflected in its stock price, largely independent of where the fed funds rate happened to sit along the way. That's the variable we spend our time on: understanding the businesses we own well enough to have real conviction in their earnings power, rather than trying to out-guess a committee that, by its own admission this quarter, can't fully agree with itself.
None of this means macro conditions are irrelevant to how we think about risk or reward, or that we ignore the environment we're investing in. It means we don't build the portfolio around predicting its next move. The data will keep coming, the headlines will keep reacting to it, and the debate over the next rate decision will start again well before this one has finished being discussed. We'd rather spend that time on the thing that actually compounds.
Rates will do what rates do. Earnings are what we're here for.