I’d say I feel sorry for Kevin Warsh, except that I don’t. After all, he volunteered for the job he’s about to step into.

Tuesday’s inflation report out of the US was inconclusive on the questions that matter, but mainstream media outlets understandably trumpeted a three-year high for headline price growth, driven by gas, groceries and rent.

“So what?” any “good” economist might ask. “Since when do people need energy, food and shelter? This is why we have ‘supercore’ inflation — so we can strip out all the irrelevant stuff.”

Jokes aside, and while reiterating that I really don’t think the BLS release offered conclusive evidence for anything other than the self-evident (i.e., that energy prices are elevated), Tuesday’s inflation data, when taken in conjunction with last week’s strong jobs report, resilient consumer spending and record-high stock prices, doesn’t exactly make the case for the rate cuts Warsh is expected (by the Trump administration) to deliver.

As the figure shows, traders were penciling in ~10bps of tightening this year on the heels of Tuesday’s CPI release, the most hawkish lean since late March, before Donald Trump tipped an inclination to extricate America from the war he started the previous month.

Note that the 2s10s has flattened ~30bps or so since Warsh’s nomination, underscoring the extent to which the war — and specifically the read-through of the energy shock for inflation — is seen as a check on the new chair’s capacity to cut rates.

A couple of days ago I mentioned that macro traders’ rates bets are now just a derivative of crude futures, which are in turn beholden to Trump’s social media feed. The figure below underscores the point.

That’s from BMO’s Ian Lyngen. The green bars are days when 10-year yields and front-month WTI moved in the same direction.

The two “have been directionally consistent in 72% of trading sessions since the beginning of the war,” Lyngen wrote, noting that “between April 14 and May 6, the daily changes in WTI crude and 10-year yields were directionally aligned for 17 consecutive trading sessions.” (Emphasis mine.)

Bottom line: Trump’s going to have to choose between his war and his rate cuts. Because he probably can’t have both, particularly not with Jerome Powell sticking around on the Fed board and the Committee already inclined against additional easing.

“The war continues to overshadow and outweigh all other potential influences [on] the US rates market [which] has been trading almost entirely off the real-time fluctuations in energy prices,” Lyngen went on, in the same note mentioned above. “Investors continue to lament this trading dynamic but begrudgingly respect it.”