Friday’s all-important (and for once, “all-important” isn’t hyperbole) US CPI report overshot consensus on the metric that matters, putting Kevin Warsh in a tough spot ahead of next week’s FOMC meeting.

Underlying price growth in August was 0.29% on the BLS’s core measure, nearly a full tenth above the official, rounded consensus, and 0.07ppt above the unofficial, 0.22% whisper number.

Contributors to the MoM gain included communication, hotel rates and plane tickets, as well as both new and used cars. The shelter gauge rose 0.3% following back-to-back 0.1% readouts in June and July.

As the figure shows, the YoY pace for the core gauge nevertheless slipped to 2.4%, the coolest since March of 2021.

The headline, all-items index rose 0.4% in August (0.396% unrounded) from July, in line with estimates. More than a third of that increase was attributable to a near 4% jump on the gasoline index. Headline price growth was 3.4% YoY. On the good news front, grocery prices were flat in August after falling in July.

STIRs came into the release pricing 70% odds of a Fed hike next week amid a return to triple-digit crude and the read-across for core PCE (due later this month) from warm checks on key PPI categories in Thursday’s wholesale price report.

Two-year US yields were 90bps wide to EFFR on Thursday, another testament to the market’s conviction that Warsh will be unable to hold the line, particularly given his own pretensions to hawkishness in Jackson Hole last month.

“It is a rare moment in financial markets when a single data print is expected to sway the FOMC’s policy stance,” BMO’s Ian Lyngen remarked on Friday morning. “Alas, that is precisely the situation the US rates market is in at the moment,” he went on. “Beyond simply defining the outcome of next week’s meeting, [the CPI report] is likely to determine whether the Fed hikes in October and/or December as well.”

A CPI-derived version of so-called “supercore” inflation — i.e., core services price growth excluding the shelter gauges — posted a 0.5% advance for August, more than double July’s MoM gain and the second-biggest sequential increase of 2026.

The initial market reaction was to price the September FOMC meeting as a virtual lock: 90% odds of a hike. More importantly (note the emphasis), longer-end US yields actually slipped in the wake of the CPI figures, which means bonds are giving Warsh the benefit of the doubt: The core CPI print means the Fed has to hike, and a Fed that hikes in the face of intense political pressure and with the clock ticking down to the mid-terms is a Fed that not only reaffirms its inflation-fighting credibility, but also reasserts its independence.

If Warsh botches this and doesn’t hike — assuming, of course, no material change in the geopolitical backdrop between now and Wednesday that suggests oil prices are set to collapse in very short order — he’ll risk a reaction on the curve that’ll make the bear steepener that accompanied his July press conference look like a walk in the park.