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A stone staircase climbing through the darkness towards an amber glow at the top, between rocks and dark structures, with no end in sight

It was not a move. It was the start of a cycle.

Hi trader,

on 16 September the Fed raised rates for the first time in more than three years.

In the six days that followed the Nasdaq printed two record highs in a row and the VIX fell 20%.

If your reaction is “the market did not get it”, stop for a second. Because the numbers say the opposite: the market got it perfectly well, and what it got is more interesting than the hike.

Ok, vamos.

What happened, in three lines

Twenty-five basis points, from 3.50-3.75% to 3.75-4.00%. Vote unanimous, twelve to zero, no dissent. First hike after more than three years of standing still or cutting.

You read all of that everywhere on 16 September, and a week later it is worth nothing.

What is worth something sits in the projections the committee publishes alongside the decision.

The real headline is not 2026. It is 2027.

Alongside the decision, the committee publishes its own rate projections. Eighteen dots on a chart, which become seventeen on the years further out, because one participant did not submit projections for 2028 and 2029.

2026 is the part that ended up in the headlines: at least one more hike by year end, say sixteen dots out of eighteen.

But look at what happened to the years after that, comparing the September projections with the June ones.

Bar chart comparing the median policy rates in the Fed projections from June and September 2026: every September bar is higher than its June counterpart, and none comes down to the line marking the 3.2% neutral level
The median rates in the committee’s projections, June against September 2026. 2026 rises by three tenths, 2027 and 2028 each rise by half a point.

The median for 2027 went from 3.6% to 4.1%. Half a point in three months.

The one for 2028 from 3.4% to 3.9%. Another half point.

And the trip back to the level they themselves consider neutral, 3.2%, never arrives at all. Not even in 2029, which is the last year projected: there the median does come down, but only to 3.6%.

Read it the way a trader would read it and not a journalist. The committee did not write “we hike once and then we see”. It wrote that rates go to 4.1% and stay there for two years, that in 2028 they come down to just 3.9%, and that at the end of the forecast horizon they have still not gone back to the level considered neutral.

That is not an isolated move. It is a high level held for years, written by the people who have to hold it. And in a moment you will see that the market expects even more than that.

And the market? It said they were right.

Here comes the part that flips your instinct.

When a central bank starts hiking, the script everyone expects is: equities down, volatility up, credit spreads widening, yields up all along the curve.

Between 16 and 22 September none of that happened. The numbers in this section sit inside that window, with two exceptions I flag as they come: the yield curve, which stops on the 21st, and the last data point, which measures the reaction of a single day.

Table of market moves between 16 and 22 September 2026: equities up, volatility sharply down, credit spreads almost flat, ten and thirty year yields down and the two year yield up
What markets did between 16 and 22 September 2026. Equities up, volatility down, credit spreads flat, and yields lower all along the curve.

The S&P 500 did +2.82% and the Nasdaq +4.87%, with a record high on the 21st and another on the 22nd.

The VIX went from 17.71 to 14.21, so minus 20%, at the lows of the month. Anyone selling volatility on the day of the first hike in three years was right.

High yield credit spreads did not widen by a single point: 2.70% on the day of the hike, 2.68% on the 22nd. A credit market that fears a squeeze does not sit that still.

And now look at the yield curve, where the data stops on the 21st because that is the last day published.

The two year went up, from 4.74% to 4.76%. The ten year went down, from 5.01% to 4.96%, and the thirty year from 5.35% to 5.29%.

Short end up, long end down: the curve flattened by seven basis points. And it is the same thing the earlier numbers say, put another way: the market expects more tightening now and less inflation later.

But the number that explains everything is another one, and it is the subtlest. This is the only one that falls outside the window, because it measures the reaction of a single day: it compares the close on the 15th with the close on the 16th.

On the day of the hike ten year breakeven inflation fell, from 2.38% to 2.33%, while the real yield rose from 2.62% to 2.68%.

And now the honest part, the one they usually do not tell you.

Ten year breakeven inflation is very sensitive to oil, and crude started falling exactly around those days. So a slice of that drop may be the barrel, not the Fed. Anyone selling you only the first half of the number is selling you a thesis, not a measurement.

But oil does not explain the other half. Crude falling pushes breakeven inflation down, it does not push the real yield up. Those six basis points of extra real yield on the very day of the decision are the one thing the barrel cannot account for, and that is where the thesis holds up.

Breakeven inflation down and real yield up, together, is what happens when the market believes the central bank will do its job. It is the textbook of the hike that works, not of the one that scares.

The market did not ignore the Fed. It believed it.

Where the market does not agree

There is one point where market and committee see it differently, and it is not the one you think.

On the next meeting, 27 and 28 October, futures gave 54% odds to another hike as of 22 September. A coin flip.

But looking out to December, the probability of being at least twenty-five basis points higher is 90%.

On direction they agree. The disagreement is on the when, and on the how much.

Over the next nine meetings fed funds futures were pricing, as of 22 September, around eighty basis points of total tightening, so roughly three hikes. The dot plot median forecasts one.

The market is pricing a longer cycle than the one the committee put on the dots.

And the two things I have just written do not contradict each other, they hold together: the market expects more hikes than the committee forecasts, and that is exactly why it expects less inflation.

What changes for anyone trading inside the day

This is the part that really concerns you, and it has nothing to do with forecasts.

The Fed chair, in the press conference, said two things that put together change the job.

The first: “I’m not in the forward guidance business”.

The second, explaining how he looks at the data: “data point dependence is a dangerous preoccupation”. Trends count, he said, single numbers are noise.

And he does not put his own dot on the dot plot, as he already did in June.

Translated into practice: the guidance the market had used for ten years to price meetings has been switched off by the people who issued it.

The market will keep pricing every single data point though, because that is what the market does. So the reactions to macro numbers are still there, and my expectation is that they get wider: with a central bank that refuses to guide, nobody confirms them or denies them the day after.

For anyone trading inside the day that is a concrete asymmetry: the move on the number is there, the confirmation that used to come afterwards is gone. You trade the reaction, not the anticipation, and to do that you need to know when the number lands.

The dates that really count

They are not all the same, and two of them weigh more than all the others put together.

Friday 2 October, the September jobs report. The committee projects unemployment flat at 4.1% for the next four years, so it expects no cost on the labour side. A weak jobs number is the thing most likely of all to change the committee’s mind from the inside. With one honest caveat: the standard the chair has set himself is declaredly about inflation, not about employment.

Wednesday 14 October, September inflation. It is the last consumer price print before the meeting on the 28th, and the chair said in the press conference that he builds his own estimates precisely on that one and on producer prices. It is the number that decides whether the next hike is in October or in December, and on that day the coin flip I mentioned above resolves one way or the other. The day after, on the 15th, producer prices come out, the second of the two numbers the chair builds his estimate with.

And be careful not to get confused: that number does not decide the committee’s mind, it decides the price. The chair has just said that he does not look at single numbers. The market does, and that is where the odds move.

Before those, on Wednesday 30 September, the August PCE comes out. It serves to check an estimate the chair made out loud in the press conference, and if it comes in above, the squeeze gets firmer.

And one to write down: the 28 October meeting has no dot plot. Statement and press conference only. The next update to the dots is in December.

A note on what can go wrong

The chair gave three reasons for the hike: an economy stronger than expected, inflation not coming down enough, and geopolitics.

The third has already moved, but not in the simple way. Crude had spiked all the way to 107 dollars on 15 September, the day before the decision, and from there it came back toward ninety, pushed by the diplomatic openings on Iran and by the expectation that Saudi Arabia will restart a major pipeline.

Watch out though: that is the unwinding of a spike, not a collapse. The barrel is still above late August levels. If it falls further, part of the job gets done by oil from the outside without the committee having to change its mind. If it climbs back up, it puts back in play one of the very reasons they hiked.

A note, because the week has already turned

What you have read above is the week from the 16th to the 22nd. On the 23rd the wind changed: equities came off the highs and the ten year yield went back up toward 5%, precisely on the fear of more hikes.

It does not disprove anything. If anything it confirms the more uncomfortable part: the market is not pricing less tightening, it is pricing more.

The circle we close

On 11 September, on this blog, we wrote that the number that decides the Fed is not the headline one but the core, and we argued it with the projections the ECB published the day before, where from 2027 onward core stays above the headline.

Five days later the Fed hiked, and its projections say exactly the same thing from the other side of the Atlantic: headline inflation coming back down first, core lagging behind, and rates that as a result stay high for longer.

Two central banks, same diagnosis. If you missed that piece, Friday’s CPI: the number that decides the Fed is not the headline is where this conversation started.

Breakeven inflation falling and the real yield rising is not a market ignoring the central bank. It is a market that believes it.

— tradingblog.itPosta su X

Let me close with the thing I wrote down in my notebook that evening.

For ten years we traded inside a system where, after every data release, somebody turned up to tell you how to read it.

That somebody has just said he will not be doing it any more.

It is not good news and it is not bad news. It is simply that noise now stays noise for longer, and the job goes back to being reading the reaction instead of waiting for the explanation.

Suerte Amigo!

Tiziano Brunno

Tradingblog

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Disclaimer: purely informational and educational content. It does not constitute financial advice or an invitation to trade. Trading involves the risk of capital loss.

Vast deserted open-plan office at night, rows of empty desks fading into darkness and a single desk lit by an amber lamp, an image of the frozen American labour market

Friday’s CPI: the number that decides the Fed is not the headline

Hi trader,

yesterday afternoon the ECB raised rates.

Second hike of the year, deposit rate at 2.50%, effective from 16 September.

And the curious part is the reason why.

Not because the European economy is running hot, it is growing 0.9% this year, which is barely more than nothing.

It hiked because the war in the Middle East keeps pushing on prices, and because that increase has stopped being just energy.

Let me walk you through it properly, because it is exactly the same question America will be asking itself on Friday afternoon.

What comes out on Friday, and when

It is the US CPI for August, the consumer price index.

The Bureau of Labor Statistics publishes it on Friday 11 September at 8:30 am New York time, which is 1:30 pm here in the Canaries and in London, and 2:30 pm in central Europe.

There are two numbers inside it, and most people only look at one.

What August forecast July (released 12 Aug)
Headline CPI, year on year 3.3% 3.4%
Headline CPI, month on month +0.4% +0.1%
Core CPI (ex food and energy), year on year 2.4% 2.5%
Core CPI, month on month +0.2% +0.2%

The headline is the big number, the one that shows up in your phone notifications at 8:30 and one second.

The core is the same index without food and energy, which are the two components that swing the most.

It sounds like a detail for economists.

It is the detail that decides what the Fed does next Wednesday.

One clarification that matters, because almost nobody spells it out: the Fed does not measure its 2% on the CPI, it measures it on the PCE, which comes out two to three weeks later.

Friday’s CPI is the first taste, and it is the one the market moves on.

But keep the number in mind: in July the CPI was at 3.4% and the PCE, the index the Fed actually watches, at 3.7%.

Why the big number lies this year

Look at the forecasts in that table.

Headline monthly going from +0.1% to +0.4%, so four times as much.

And meanwhile the annual headline goes down, from 3.4% to 3.3%.

Core moving by one tenth instead, from 2.5% to 2.4%.

If Friday comes out like that, the message is not “US inflation is taking off again”.

The message is “US inflation is being made by the barrel”.

Brent above 100 dollars, a 4% jump yesterday that took it into the 105 area on yet another attack on commercial shipping, pump prices following in stages, half the increase within two weeks and the rest over the month and a half after that.

And it is not just a forecast any more.

Yesterday US producer prices for August came out at +5.4% year on year, and more than three quarters of the monthly increase is energy: +4.2% in thirty days, with diesel at +24%.

Producer prices are the floor above, the one the consumer sees a few months later.

This is called cost-push inflation, inflation that comes from the supply side.

It does not come from people buying too much, it comes from something costing more because getting it here has become complicated.

And there is very little a central bank can do about inflation that comes from the supply side.

Raising rates does not reopen a strait and does not make a tanker arrive any sooner.

The old textbook says a central bank should “look through” a supply shock, because it fades when the shock fades.

The problem is that the textbook holds only as long as that increase stays locked inside energy.

The detail the ECB put right in front of you yesterday

And this is where yesterday becomes useful, instead of just being an item on the evening news.

Look at the projections the ECB published yesterday, the ones from its own staff:

Year Headline inflation Core inflation
2026 3.0% 2.5%
2027 2.5% 2.6%
2028 2.1% 2.3%

Did you notice?

In 2027 and 2028 the ECB expects core to be higher than the headline.

And there is one more detail: it revised that 2027 and 2028 core up by a tenth compared with June.

It does not just expect the second round, it expects it a shade stronger than it did three months ago, and it puts that down to an economy holding up better than forecast and to wages growing a little faster.

Translated: it expects energy to come back down, and it expects that by then the increase will already have passed into everything else.

Transport costing more, so goods costing more, so services, so wages asking to catch up.

They are called second-round effects, and they are the only thing that justifies a hike in the middle of a war.

It did not hike because of the barrel.

It hiked because the barrel is getting into places it does not come out of.

Lagarde said two things in the press conference worth keeping: that this hike was “a no brainer”, an obvious call, and that she cannot anticipate what the next move will be.

No commitment to a rate path, decisions taken meeting by meeting.

The exact same words you will hear on Wednesday from the other side of the Atlantic, want to bet?

Why Friday carries more weight than usual

Because the Fed decides on 16 September.

Two-day meeting, the 15th and the 16th, decision on Wednesday afternoon, and this time there is also the dot plot.

The dot plot, let me explain, is that chart of dots where each of the people sitting at the table, including the ones who do not vote this year, marks where they see rates at the end of this year and in the years after.

Nobody signs their own dot, so nobody really commits, but the cloud of dots tells you which way the wind is blowing inside the room.

It comes out four times a year. The last one was in June. The next one is Wednesday.

And it lands at an unusual moment.

US rates have been sitting at 3.50-3.75% for five meetings.

In July three members voted against, and not to ask for a cut: to ask for a hike.

Then on 28 August, at Jackson Hole, Fed Chair Warsh talked about credibility and about a 2% target with no discounts, and the odds of a September hike almost doubled in three days, from 35% to 66%.

And yesterday the market changed its mind in half an hour.

That producer price print pushed the bet on Wednesday’s hike from about 60% to about 70% on futures, and prediction markets toward 63%.

That is why Friday is not just another data point.

It is the last inflation print before a decision that is already half priced, but not closed.

And a market at 70% is the worst place to be caught by a data release: the hike is in the price enough not to pay you if it lands, but not enough to protect you if it does not.

And afternoons where one number can still move a decision that is already half written are the afternoons when the chart does not forgive a lapse in attention.

The four roads the afternoon can take

I am not giving you entry signals, of course not.

I am giving you the map, so that whatever comes out at 8:30 does not catch you open-mouthed.

Hot headline on the month, cool core. The consensus scenario. This is the “it is all fuel” case: the Fed can say it is letting that increase pass through, the hike bet deflates a little, yields take a breath and equities get some air. Careful though, it is relief with an expiry date stamped on it, because with Brent up there the same question comes straight back next month.

Hot headline, hot core. The worst one if you hold bonds and equities. It means the barrel is already inside the rest of the basket, exactly the scenario the ECB put in writing for Europe yesterday. Here Wednesday’s hike becomes the main bet, the dot plot shifts up, the 10-year, which yesterday was trading around 4.9% and sits at its highest since late 2023, goes looking for the next threshold and equities pick up the bill.

Headline in line, core below forecast. The best one for equities. The hawks are left without ammunition for a week and the market celebrates. It is also the scenario where it is easiest to fall in love with the move and stay long into Wednesday, which with a dot plot on the way is an elegant way of giving the profits back.

Everything below forecast. The hike prices out, and the old “weak data, kind central banks, buy everything” reflex is back. But watch out: this Fed chair has built the first months of his term on the credibility argument. A good print does not change his problem, it postpones it.

Scoreboard with the three numbers expected from the US employment report of Friday 7 August: 80,000 jobs added, unemployment rate at 4.2% and average hourly earnings up 3.5% year on year, each compared with the June figure and with the range of analyst forecasts
The four combinations of headline and core, and what the market tends to do in each one. These are not signals, they are the four ways the afternoon can go.

How I handle it

Three practical things, all of them learned the expensive way.

I do not enter on the spike.

I do not trust the first candle at 8:30, and not for psychological reasons so much as technical ones: wider spreads, slippage, prices going one way and coming straight back in the time it takes you to read the headline.

The market reacts to the big number first, then reads the core, and only then really makes up its mind.

In my diary, the move that holds into the close is almost never the first one.

I look at where the walls are before the number is out.

On a day like this, part of the move is not made by the news, it is made by the levels where the market is already loaded with options and market makers have to hedge.

That is not black magic, it is gamma exposure, and knowing where those levels sit changes how you read a spike.

The macro calendar and the gamma on the S&P and the Nasdaq are on the Thunder Desk, they are free, and they spare you the classic scene of a trade left open by accident thirty seconds before the release.

Open it in the morning, not at 8:29.

I cut size before, not after.

If you have a position going into Friday afternoon alive, you do the maths now on what you actually lose if the stop goes with a double spread, with numbers, not by eye.

And I write everything down.

Not the result, the reaction: what I expected, what came out, what price did in the first five minutes and what it did at 10 am.

After three or four macro releases logged in the diary you start noticing that you, personally, have a recurring behaviour on days like these.

It is almost always the same mistake, and it is almost always an expensive one.

Three things to take home

  1. Friday’s big number and the number that moves the Fed are two different numbers. Monthly headline expected to accelerate hard on energy while the annual one falls. Core expected to sit still. It is the distance between the two that tells you whether this inflation is a barrel of oil or something deeper.
  2. The ECB showed you the criterion yesterday. It hiked looking not at the headline but at a core that in its own projections stays above the headline in 2027 and 2028. When a central bank fears second-round effects, the hike arrives even in the middle of a war and with growth at 0.9%.
  3. Wednesday brings the dot plot, and the hike is already 70% priced. An inflation print landing five days before a decision that is almost made but not signed is worth double the usual. You do not need to guess it. You need to not be surprised by it.

If you want the wider picture, the piece on what was at stake at the Fed at the end of July and the one on what a strong dollar does to your trades still hold up, the context has changed less than it looks.

The headline tells you what fuel costs. The core tells you whether the problem is the fuel or you.

— tradingblog.itPosta su X

Let me close with the thing I repeat to myself every time there is a big release on the calendar.

My job on Friday at 8:30 is not to guess the number.

It is to know in advance what I do in each of the cases, and to have already decided which of those cases keeps me out of the market.

The rest is noise.

Suerte Amigo!

Tiziano Brunno

Tradingblog

Want to put your market reading to the test?

Compete and challenge other traders inside an Arena in a demo environment, with no real capital at risk. Discover the Performance Arena Events by The Thunder Trader.

Discover The Thunder Trader →


Disclaimer: purely informational and educational content. It does not constitute financial advice or an invitation to trade. Trading involves the risk of capital loss.