The Research Brief
A Weekly Survey of Markets, Policy, & Power
Issue No. 24 · Sunday, the 30th of August, MMXXVI · London
- UK CPI rebounded to 2.9% in July from 2.6%, with services easing to 3.4% while goods inflation climbed from 1.7% to 2.2% — the signature of energy working its way through the supply chain, at precisely the moment Bailey went to Jackson Hole to argue second-round effects are subdued.
- Kevin Warsh's debut as Fed chair moved September hike odds from roughly a third to near-even, and the two-year Treasury from 4.22% to 4.30%. His actual argument was broader than one meeting.
- Nvidia printed $96.2bn of quarterly revenue, up 106% year-on-year, and ten of eleven S&P sectors still finished Thursday lower. One trade is carrying the index.
- US–Canada talks collapsed into 50% tariffs; Ottawa's retaliation lands 8 September. The lumber and cement component feeds straight into the stickiest line in the US CPI basket.
The Editor's View
A note from the desk
Markets Have Priced the Date, Not the Destination
The Research Brief takes the view that the Federal Reserve raises rates before the end of this year, and that equity markets have priced the timing of that move without pricing its destination. Futures went from about a third to roughly a coin flip on September within hours of Warsh speaking. That is an argument about a date.
The more consequential line in the speech was that financial conditions do not appear restrictive enough. A chair who believes the current setting is failing to do its job does not stop after one 25bp adjustment — the observation only makes sense if further tightening is in contemplation. Core PCE has been stuck at 3.3%, the monthly core rate accelerated from 0.1% to 0.2%, and Warsh noted that more than half of the basket is still rising faster than 3%. The summer's improvement looks like composition. The strongest objection is growth: Q2 was confirmed at 1.5% annualised, and a weak payrolls print on 4 September would make hiking into a slowdown very hard to justify.
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