China 'Saved' Oil From Exploding Higher, Here's How That Could Reverse | Shaun Rein Shaun Rein

David Lin (0:00)

It's Friday, September 11th, this morning, August headline CPI rose 0.4% on the month and 3.4% over the year. It's more or less in line with market expectations, while core prices rose 0.3% harder than market expectations. Gasoline jumped 3.9% in August and accounted for more than one-third of the monthly CPI gain. The 10-year Treasury yield is near 4.93%, the highest since 2023 And this comes after Thursday, Treasury Secretary Scott Bestin announced that the US. Treasury bond buybacks will increase to $6 billion per operation. Meanwhile, Brent crude is just now at 107 A Barrow in WTI is just under 100 As we're recording at 1230 p.m. Eastern time, oil dropped 3% after Iran and the Gulf states announced their meeting to discuss ideal. So is a Fed rate hike next week pretty much a certainty? And how much longer can the consumer last on the double whammy of higher interest and higher oil? Well, right now on Cauchy, there's a trade going on. Traders are predicting that there's an 80% chance of a 25 basis point hike next week. This surged dramatically from 60% just yesterday now to 80%.

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Cauchy is CFTC approved and available in all 50 states, including California and Texas. Bloomberg Economics Chief US. Economist, Anna Wong joins us now. Prior to joining Bloomberg, Anna earned her PhD in economics from the University of Chicago, and then spent a decade at the US. Treasury, Federal Reserve, and the White House, where she served as Chief International Economist from 2019 until 2020

Welcome back, Anna. Good to see you again.

Anna Wong (1:53)

Hi, David. Nice to be here.

David Lin (1:55)

Let's start by talking about today's CPI report. August CPI rose 0.4% monthly, 3.4% annually. Is this a temporary setback or the start of renewed inflation? Like I stated in the introduction, a lot of this was accounted for by the rise in gasoline and oil prices over the last month.

Yeah.

Anna Wong (2:14)

So the headline, a core surprise on the high side, but when you dig into the details, it is really due to a couple outliers. One of them is the wireless phone services category. So in Bloomberg, we have created a massive price mapping project called Bloomberg Price Project, where we collect over a million prices across 300,000 categories each month. And what we notice is that what's contributing to this jump in wireless phone plans is due to Verizon. So and also there's another discrete jump in hotel prices. And these two categories are sort of irregular, one-off, temporary, volatile type of categories, right? On the other hand, we see a lot of, still see a lot of disinflationary pulses in the report. For example, housing rents, primary rents and owners' equivalents of rents are low, and they have moderated, continue on a moderating trajectory.

We are seeing several food categories also coming down. So there had been some supply shocks several months ago in lettuce, tomatoes. All those are just, we are seeing a mean reversion in those prices. And at the same time, we are also seeing that medical commodities, so both prescription and non-prescription drugs, seeing declining prices. So those are, you know, I would say all in all, if you drill into the details of the report, it is one that's more mixed and nuanced than the hotter than expected headline, headline and core reading suggest. Unfortunately, for the Fed, there's now not much room to maneuver to consider these nuances. And that's because of two things. Number one, Kevin Warsh had given a very hawkish speech at Jackson Hole a couple of weeks ago. And that speech has pretty much signaled to the market that, well, if this report does not, the CPI report does not show declining year over year inflation, then markets should go ahead and price that in, price a hike in. And so that's what the market has internalized from Warsh's speech. And subsequently, Governor Chris Waller also give a very speech of similar tone, which is that he said, we need to see the CPI report. If the CPI report shows inflation is hot, we move. If it doesn't, you know, we hold. Well, the second factor that really has boxed the Fed in is that Kevin Warsh has said, he's reducing Ford guidance. Rather, he wants to lean on the market signals, the unfiltered market signal to shape economic reality. Well, the market signal right after the CPI report, which is unfiltered and not contaminated by FedSpeak, is that they want the Fed to hike. They expect the Fed to hike.