I expect the Federal Reserve to raise its short-term benchmark interest rate by 25 basis points at the Wednesday, sepptember 16, meeting of the Open Market Committee. The move would bring the rate to 3.75%-4.00% from the current 3.50%-3.75%. The CME FedWarch Tool puts the odds of a 25 basis point increase at 87.3%.
Odds of a 25 basis point increase in the Federal Reserve’s benchmark shortbterm interest rate, at the Fed’s September 16 meeting, rose to 86.7% fomr 72.4% yesterday, according to the CME FedWatch Tool after a key gauge of U.S. consumer prices rose by more than expected last month. Odds of a second increase in 2026 rose to more than 70%.
The prices in the Producer Price Index rather quickly find their way into the prices paid by consumers. (For many items, the recorded price in the indexis the price from the first commercial transaction—for example, a manufacturer selling to a distributor, retailer, another business, government buyer, or export market.) So a big jump in the PPI is certainly not good news for consumer inflation as reflected in an index such as the Consumer Peice Index, set to be reported tomorrow, Friday, for August.
Just a day after U.S. Treasury Secretary Scott Bessent warned financial markets to remember that “I am the house now,” the $32 trillion treasuty market isued a rejoinder: The bond market rejected the Trump administration’s latest attempt on Wednesday to lower borrowing costs, and pushed the 10-year Treasury yield rose to its highest level in roughly three years.
The next major U.S. inflation data release is the August 2026 CPI report, due Friday, September 11 at 8:30 a.m. Eastern Time. Analysts generally expect a “firm” August CPI report, led by energy with all-items inflation up roughly 0.4% month over month and +3.4% year over year. Core CPI—-which excludes food and energy prices–is expected to climb 0.2% month to month, with year-over-year estimates clustering around 2.4%–2.5%. A headline, all-items rate of 3.4% would leave inflation roughly unchanged from the annual rate in July. Which would make the markets nervous. One of the strongest arguments for increaseing interest rates at the September 16 meeting is that there is a lack of progress on reducing inflation to the Fed’s targeT of 2%.
I think these stories about asset sales, gold transfers, and ccurrency management all point to a gradual but profound long-term movement in the financial markets that will keep pressure on the dollar and raise Treasury yields as the U.S. has to compete for investors’ cash. No matter what the month to month chages in the U.S. labor market. I’d use the reaction to short-term noise as an opportunity to add to long-term positions in gold, silver, and copper. How? See my forthcoming post on building a metals ladder.
The U.S. economy added 162,000 jobs in August, topping all estimates in Bloomberg’s survey of economists. The unemployment rate held steady at 4.1%. The participation rate–the perentage of the population that is working or looking for work–edged up to 61.6% in August, marking the first improvement in almost a year. The Bureau of Labor Statitics revised the jobs totals for both June and July–adding 55,000 jobs to the originlly reported totals. The advance in payrolls was led by a rebound in leisure and hospitality employment and government jobs. Manufacturing payrolls rose by the most since 2023, while construction firms added the most jobs since January. Stocks and bonds fell on the fear that the strong performance increased the odds of a interest rate incrase from the Federal Reserve at its Seotember 16 meeting.
The dollar sank to the lowest level since May on Thursday, September 3 after Federal Reserve Governor Christopher Waller noted progress on inflation and as the yen surged against its major counterparts. The Bloomberg Dollar Spot Index fell 0.6% on Thursday, dropping against all of its Group-of-10 peers. The yen led gains, climbing 2.1% versus the greenback, as traders boosted bets on Bank of Japan interest-rate hikes and remained on alert for signs authorities were potentially stepping in to bolster the Japanese currency. The dollar is down about 2.6% this quarter and has weakened against all G10 peers as investors revive the debasement trade, the view that U.S. policies will erode the currency’s value. Treasury Secretary Scott Bessent’s moves to support the yen and contain rising U.S. yields have fueled those concerns, as have doubts over whether Federal Reserve Chair Kevin Warsh will raise rates to curb inflation amid Trump’s push for lower borrowing costs. The fact that the dollar moved so strongly lower on such a relatively minor catalsyt–one Fed governor saying the inflation picture might be improving- tells us a lot about the underlying structure of the currency market right now. Yes, the financial markets don’t have a lot of faith tyat Treasury Secretary Scott Bessent and Federal Reserve chair Kevin Warsh won’t use inflation and a weak dollar to solve the $40 trillion U.S. debt problem. But perhaps even more importantly in the short run–say the next six months or so, the big holders of US. dollar assets have gone into the recent sell off in the dollar way underhedged. If these investors simply move back to historic levels of hedging their portfolios against a decline in the dollar, we‘re looking at the equivilent of a lot of dollar selling.
On Monday at the G20 meeting of finance ministers and central bankers in Asheville, North Carolina, Treasury Secretary Scott Bessent called the run-up in yields a “growth story.” Bessent’s argument is that stronger growth prospects–rather than expectations for higher inflation as a result of the renewed attacks between Iran and the U.S. or a massive $40 trillion U.S. debt–were fueling the rise in yields. The 10-year Treasury yield was at 4.78% on Wednesday, near the highest level in two years. The 30-year yield was at 5.26%, erasing the drop that followed Bessent’s bond market intervention announcement last month and hovering near its highest levels since 2007.
I’d argue that enshittification is the most important trend in the current economy. It explains why an economy that, by the numbers is roughly okay, feels so terrible to so many people. And enshittification ays that all our cuurent measurs of nflationn are dead wrong. Real life inflation is way higher than the statistics say. Do you know what enshittifaction is?
Friday’sjob report fot August will be just strong enough and just weak enough to leave the Federal Reserve trapped in its current indecision on interest rates. Economists estimate the monthly employment report from the Bureau of Labor Statistics on Friday will show a 55,000 increase in payrolls after an unexpected dip in July employment. Such a result would be broadly in line with average monhly job growth this year. The unemployment rate is seen holding at 4.1%.
Fed chair Kevin Warsh can preach all he wants about wanting to get the Federal reserve out of the “forward guidance” business. But he can’t stop the financial marlets fromtreating his remarks as if they were forward guidance. In his speech this morning at the Fed’s annual global central bankers confab in Jackson Hole, Wyoming, Warsh said, “Here is my standard: We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do. That’s our job” And the financial markets heard that as a promise to bring down inflation by raising interest rates. Two-year yields climbed 12 basis points to 4.35%. The yield on 30-year securities barely budged. The dollar rose. Gold fell.
