CPI didn’t surprise the market. But it changed the Fed debate.

August CPI came in at 0.4% MoM and 3.4% YoY, broadly matching expectations.

At first glance, that sounds neutral.

But the more interesting number was core CPI: 0.3% MoM, slightly above the 0.2% economists had expected. Core inflation is now running at 2.4% YoY.

That matters because the Fed isn’t only looking at whether inflation is falling.

It needs confidence that inflation is moving sustainably toward 2%.

And right now, that confidence looks fragile.

Markets have consequently increased the probability of a September rate hike, while Treasury yields have also moved higher.

I wouldn't interpret this CPI as a guaranteed hike.

But I also wouldn't build a trading thesis around aggressive rate cuts anymore.

The Fed has a difficult setup:

→ Inflation remains sticky
→ Oil is adding another inflation risk
→ Employment data still matters
→ Policy expectations are becoming more divided

For crypto and equities, the important variable may not be CPI itself.

It is what CPI does to the expected path of rates.

That is where volatility can come from.

Question:
Do you think the Fed pauses in September, or has the inflation trend become strong enough to justify another hike?$BTC

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