Episode summary
The Fed, Football and the Price of Ambiguity
Thoughts on the Market (Morgan Stanley)
· · 5 min · Hosts: Andrew Sheets
Summary
Andrew Sheets argues that markets may be underpricing uncertainty across three areas: Fed policy, AI financing, and energy. He uses American football as a metaphor for the value of ambiguity, noting that teams gain by not revealing their play too early, while investors have to price the uncertainty that remains.
On the Fed, he says markets are pricing about a 2/3 chance of a rate hike next week, but he thinks the Jackson Hole remarks from Chair Walsh can still be read as consistent with the Fed staying on hold. His team expects inflation to improve in the second half of the year and therefore forecasts no action at next week’s meeting.
He also highlights a huge expected buildout in AI-related spending, with Morgan Stanley analysts forecasting more than $1.3 trillion of spending among the six largest hyperscalers in 2027, up 60% from this year. The question, he says, is not whether the spending happens, but how it is financed and what it does to other markets. Finally, he sees tighter energy supply, raises the Brent oil forecast to $100 per barrel and European natural gas to €88 per megawatt hour, and says investors should seek compensation for the wide range of possible outcomes.
Key takeaways
- Andrew Sheets says the Fed is a close call, but Morgan Stanley still forecasts the Fed to stay on hold next week.
- Markets are pricing about a 2/3 chance of a rate hike next week, which he says may not fully reflect the ambiguity in Chair Walsh’s comments.
- Morgan Stanley analysts forecast more than $1.3 trillion of spending among the six largest hyperscalers in 2027, a 60% increase from this year.
- Sheets says the financing mix for AI capex is uncertain, and that uncertainty could spill into Treasury yields and other markets.
- Morgan Stanley has raised its fourth-quarter forecasts to $100 per barrel for Brent oil and €88 per megawatt hour for European natural gas.
- He prefers collateral-backed assets over unsecured corporates and sees energy equities as an attractive hedge against oil risk.
Notable quotes
“not tipping whether the play is a run or a pass, disguising whether and where you're going to blitz”
“Markets are pricing a roughly 2/3 chance of a rate hike next week”
“We forecast the Fed to stay on hold next week. It is admittedly a close call”
“Morgan Stanley analysts forecast more than $1.3 trillion of spending among the six largest hyperscalers in 2027, a 60% increase from the record setting levels of this year”
“we've now raised our fourth quarter forecast to $100 per barrel for Brent oil and €88 per megawatt hour for European natural gas”
How the episode opens
Welcome to Thoughts on the Market. I'm Andrew Sheets, global head of fixed income research at Morgan Stanley. Today, what American football can teach us about the value of ambiguity.
It's Thursday, September 10th at 2 p.m. in London. I really like this time of year.
It's a little cooler outside. There's the excitement in the air of a start of a million new school years. And of course, it's finally American football season.
Of the top 100 US television telecasts in 2025, 90 were football games. In an increasingly divided world with an increasingly fragmented ecosystem for content, this unonymity is stunning. And while many factors explain football's popularity, one that I've come to appreciate more with time is its strategic complexity, especially the value of ambiguity.
not tipping whether the play is a run or a pass, disguising whether and where you're going to blitz. Coaches work hard to keep their options open until the last possible moment. And as we enter September, this strategy is not just confined to football.
Take the Fed. Markets are pricing a roughly 2/3 chance of a rate hike next week. About the same chance that an NFL team passes on second and seven.
Part of that uncertainty comes from exactly how you parse Fed Chair Walsh's comments at Jackson Hole. Chair Walsh said the Fed needs to be confident that underlying inflation is moving towards its objective quote clearly and at sufficient speed otherwise it has quote work to do. This was generally interpreted as a move closer to raising rates.
But was it? What is sufficient speed? What counts as underlying inflation?
And what does work to do actually mean? After all, if inflation is better in the second half of the year, as our economists expect, this framing could just as easily justify no action.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- fed policy uncertainty
- rate hike odds
- ai financing ambiguity
- energy supply
- market pricing of uncertainty
Companies and tickers mentioned
- MS
- Morgan Stanley
Watch the episode
Watch “The Fed, Football and the Price of Ambiguity” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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