The Guest Who Won't Leave
For the week ended 9/12/26.
Welcome back to Monday Morning Musings after a week off courtesy of the Labor Day holiday. And with that, let’s jump right back into everyone’s favorite economic topic - inflation. Apparently, it missed us.
The Consumer Price Index rose 3.4% over the trailing 12 months in August, unchanged from July. More importantly, core CPI, which excludes food and energy, rose 0.3% for the month, slightly hotter than economists expected. That interrupted two months of mildly encouraging inflation data and, once again, raised questions about the assumption that price pressures would steadily fade during the second half of the year.
So much for that.
Tariffs haven’t disappeared, energy prices remain elevated, and inflation continues to stubbornly hover well above the Fed’s 2% target. Not exactly the combination the Federal Open Market Committee was hoping for heading into this week’s meeting.
Markets certainly got the message. Traders now place the probability of a rate hike this week at roughly 87%. At the Fed’s July meeting, three officials dissented in favor of raising rates, and since then several others have indicated they could join them if inflation failed to improve.
Well…here we are.
Meanwhile, consumers aren’t exactly bursting with enthusiasm. The University of Michigan Consumer Sentiment Index fell to 47.8 in September from 51.7 in August. Perhaps even more telling, one-year inflation expectations jumped to 4.6%. Consumers may not have PhDs in economics, but they certainly understand what happens every time they pull into a gas station or head through the grocery checkout line.
Speaking of energy, oil moderated late last week, with Brent crude settling around $104 per barrel. “Moderated,” of course, is doing some heavy lifting in that sentence.
Markets struggled as well. Domestic stocks fell 0.8% for the week, foreign shares declined approximately 2.2%, and bonds suffered another rough outing as Treasury yields moved sharply higher. The 10-year Treasury finished the week near 5%, a level we haven’t seen in years.
Looking ahead, Wednesday’s FOMC decision takes center stage, with retail sales also providing another read on whether the American consumer remains willing - and able - to keep spending.
So much for easing gently back into things after Labor Day.
Grab the coffee. It could be an interesting week.
Interesting data point of the week.
Comments