Stagflation, Coffee, and the FOMC Tightrope

For the week ended 9/13/25.

Welcome to the second half of September. And for those football fans in the audience, you’re either chest-puffing or quietly weeping in the corner (I’m in the latter camp, tissues in hand). Weekend sports aside, let’s shift to the bigger contest: inflation.

Last week, headline CPI bumped up in August to 2.9% from the 2.7% level of the prior two months. Driving the increase were items like certain fruits (up 10%), auto repairs (up 15%), and – brace yourself - coffee (up 21%). For perspective, CPI stood at just 2.3% in April. Adding more sting, core CPI rose 3.1% year-over-year, meaning if it weren’t for falling energy prices, inflation would be dominating headlines.

As noted in last week’s Monday Morning Musings, the weak jobs picture only amplifies the drama. Together, these data points highlight the tightrope the FOMC now walks heading into Wednesday’s decision. Markets are betting heavily on a significant cut – 25 bps, maybe even 50 – as payroll weakness and rising jobless claims outweigh inflation in the eyes of investors.

Here’s the rub: these conditions smack of stagflation – a weak jobs picture and slow growth colliding with sticky inflation. That leaves Powell and company in a lose-lose corner: raise rates to fight inflation and risk deepening the employment situation, or cut rates to juice growth and employment and risk fueling more price hikes. Meanwhile, my reader poll last week showed 43% worried about “recession warning signs” and another 29% sensing the economy is “cooling off fast.” Cheerful crowd, aren’t we?

And yet, markets danced anyway. Domestic stocks gained 1.6%, foreign shares advanced 1.9%, commodities and global real estate joined the rally, and even bonds rose 40 bps. Domestic fixed income is now up 6.4% YTD. Inflation be damned, the party rolls on.

So buckle up and grab the popcorn for Wednesday’s FOMC show. The only real suspense: will it be a 25-point cut or something north of 50? Either way, it’s must-see monetary policy. In the meantime, secure your caffeine fix before the price per cup climbs again.

Good morning.

Interesting data point of the week.

Source: Visual Capitalist

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