00:00Anna, the number, were you surprised by it? It was lower than forecast in August.
00:05Well, the headline is in line with ours, but the components that go into the core PCE deflator,
00:12which is what the Fed cares about, came in higher than we thought. So namely, healthcare
00:19inflation has surged and airfares was growing at 3.2%. So those two are going to potentially
00:28make this core PCE print bearing a downside to pricing CPI. It is probably going to be 0.25
00:39or above, potentially rounding to 0.3. Anna, you and your team have a note out,
00:45and I love the headline. It got my attention, so that worked. It's CPI or bust for Hawks on the
00:50FOMC.
00:51What do you mean by that? Well, it is basically the CPI and PPI print will determine whether the
01:01Hawks would get the upper hand in the FOMC next week. And so I think right now, the Hawks may
01:08have the upper, you know, may have what they want. But one thing that won't be determined by the CPI
01:17and
01:17PPI print today and tomorrow is the PCE downward revisions, the downward revisions to the inflation
01:26two weeks after the FOMC meeting. So I think one lingering uncertainty going into next week's Fed
01:33meeting for us is how is the FOMC going to take into account a sudden downward, a 0.2 percentage
01:42point downward revisions in core PCE after this meeting? Are they going to consider that that is
01:48in line with, you know, continuous disinflation as they make the decision? Because if they do,
01:56then that makes a whole lot of difference. And that will set the case for not hiking next week.
02:02And I want to take you back to Fed Chair Kevin Warsh back at Jackson Hole. He was saying that
02:06CPI
02:06would be a little bit more significant for policymakers than August payrolls. Do you think
02:12he's right? Yeah, I think, well, given that inflation has been above target for five years,
02:19and that seems to be the speaking point that every single FOMC participant is reiterating
02:26in recent months. So that's why they are focusing and prioritizing inflation data over jobs data.
02:35And the bond market's really moving here. We got the 10-year up about eight basis points today,
02:41about 492. What do you make of the consistently higher moving rates?
02:46Yeah, so first of all, it's a global phenomenon. You can see that yields are higher
02:53in all the advanced economies that have high fiscal deficit and fiscal debt. And second of all,
03:00I think part of it is related to concerns about U.S. fiscal trajectory. Particularly after the IEPA
03:09ruling, we have a missing $1 trillion in the 10-year budget horizon. It used to be that
03:17the $1 trillion from tariffs would be able to partly pay for the one big beautiful bill,
03:24which cost $3 trillion. And now we're missing, you know, a third of that funding. And I think
03:31bond vigilantes definitely are paying attention to that. Finally, I think part of it is that the Iran
03:40war play a key role and concerns about inflation. And with the war re-escalating again, I think
03:47that's definitely a catalyst into the, you know, sell-off in the bond market.
03:53Hey, Anna, before the opening bell, what point do yields become a threat to the economy? Like,
03:58rather than reflecting stronger growth, higher inflation expectations?
04:03Well, I think exogenous increases in yields would restrain the economy. And at 4.8 percent,
04:14approaching 5 percent, I think we are approaching that line where you will definitely see
04:19revolutionize. And I think 50 3 9 percent, I think we notice that the
04:2020th of around 4.9 percent, I think that the
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