Hikes on the Horizon, Diesel Distress and Remembering September 11 9/11/26

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Kelly Evans (1:02)

Thank you very much, Scott. Stocks are trying to make some gains this Friday, even as yields move up again. I'm Kelly Evans, and welcome to The Exchange. Markets are climbing a wall of worry today, rising in the face of sticky core CPI. That's putting odds of a rate hike next week up to 85%.

It has the two-year treasury hitting multi-year highs, about 465 earlier, 462 last checked. Ten-year was lower on this session, but is now ticking up to 4.95%.

Keep an eye on that. Oil's still lower today, despite some troubling developments in the Middle East in the past 24 hours. We'll talk to Jonathan Panikoff of the Atlantic Council about that, as gasoline prices hit 429 nationwide today. Plus, remembering 9-11, Peter Tuchman joins us from the floor of the New York Stock Exchange, where he was working that day to share his reflections. But let's begin with today's economic reports. CPI was a touch firmer than expected on the core, and the preliminary September Consumer Sentiment Report was pretty awful, following four points back to near record lows, with inflation expectations hitting 4.6 percent next year and still 3.4 percent for the medium term. Michael Feroli is the Chief US. Economist at JPMorgan. He joins us for our opening exchange today. Mike, it's good to see you. And you just, like an hour ago, you just upped your forecast to two hikes this year, is that right?

Michael Feroli (2:20)

Yeah, I think next, after today's, this morning's CPI report next week seems pretty likely that we're going to get a hike, given some pretty hawkish rhetoric we got over the last few weeks. I think not hiking would be, risk some credibility issues. Again, I don't think it's a done deal, but I think it's certainly more likely than not.

Kelly Evans (2:39)

Is that because you say, as some others have, that Warsh would kind of look silly if he didn't hike, given his comments in Jackson Hole? Is that because you think that we really should hike? Because I'm curious if you share the view. I'm a little concerned that hiking into an oil price shock could end up making things worse.

Michael Feroli (2:58)

Yeah, that's right. But we have a pretty stable labor market. So we've had an oil price shock also in the spring. The economy seemed to get along quite well. So we're undergoing another second oil shock now. But as I said, we've seen pretty good resilience in overall growth.

I wouldn't say this is necessarily the beginning of a long extended hiking cycle. So if it ends up being too much for the economy to handle, which I doubt, there's no commitment to continue hiking after next week.

Kelly Evans (3:30)

That's the big debate now, as you probably know, is how many hikes, not just will they or won't they.

Even though there are some on the street, like Tom Simons and Jeffrey says, this report could go either way. It's not a slam dunk for a hike. It's not a slam dunk for those who say there's no inflationary pressures either. But with now prediction markets and everybody else moving to how many hikes, and you guys aren't too, but how much should we extrapolate?

Michael Feroli (3:52)

Yes. First of all, I'd agree it's not a slam dunk, and you can read this report in different ways. You can, of course, strip out different things and it doesn't look so bad. But the reality is, you're looking at core PCE, likely running at 3.3 percent, that's decently above the Fed's target. How many more after this then, I think is the big question.

We only have one more in December, and that's partly because we think most of the inflation we're seeing right now is due to the supply shocks we've been experiencing, namely tariffs and the energy price shocks. So we don't think this is demand-driven inflation that requires the Fed to really lean against growth in a big way. But I do think they need to burnish their credibility on fighting inflation at the risk that inflation expectations could come unanchored, which they haven't really. As you mentioned in your rundown of the Michigan report, inflation expectations are a little bit on the high side of where you'd like to see them. So I think a hike or two would probably help to restore some credibility there, or maintain credibility, as you say.