From Fortune · Eva Roytburg · · 1m 20s
The Fed's hiking cycle just came back to life
A hotter-than-expected August CPI pushed odds of a rate hike to 85%, and one phone-bill quirk did a third of the damage.
In brief
A hotter-than-expected August CPI pushed odds of a rate hike to 85%, and one phone-bill quirk did a third of the damage. One line in the CPI report, a record jump in cellphone service prices, accounted for roughly a third of core inflation and may have tipped the Fed toward hiking. Originally reported by Fortune.
Hikes are back on the table
Oil above $100, surging bond yields, an AI capex boom straining credit, and a hot producer-price report had Wall Street jumpy before the final inflation print.
“The Federal Reserve's hiking cycle suddenly looks alive again.”
Waller set the bar low
With Chair Kevin Warsh staying ambiguous about the next move, Governor Christopher Waller told traders what the trigger looked like.
“it may not take much acceleration in inflation”
CPI cleared it easily
Core consumer prices rose 0.3% in August against expectations of 0.2%. Headline CPI hit 0.4%, with gasoline up 3.9%.
Markets repriced fast
Odds of a quarter-point hike next week jumped to about 85% from 70%. The 10-year Treasury yield pushed toward 5%, and stocks rallied anyway.
Main Street is squeezed
Wage growth slowed for a fifth straight month and consumer sentiment sat near a record low, even as markets cheered.
“We haven't seen this type of income squeeze since 2012”
A phone bill moved the Fed
Wireless service prices jumped 5.9%, the largest on record, contributing about a third of core CPI's rise. Strip it out and core inflation rounds to 0.2%, not 0.3%.
“Bull markets don't die of old age, they're killed by the Fed.”
Here's the gist
One line in the CPI report, a record jump in cellphone service prices, accounted for roughly a third of core inflation and may have tipped the Fed toward hiking.
