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* FIEND'S SUPERBEAR MARKET REPORT *

* October 13, 2026 *

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* e-mail: fiendbear@fiendbear.com *

* web address: http://www.fiendbear.com *

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Fiend Commentary
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CPI May Matter More for December

Wednesday's CPI report is supposed to be one of the last major pieces of information the Federal Reserve receives before its October meeting.

It may also be largely irrelevant to what Kevin Warsh does this month.

Markets currently put the probability of another quarter-point hike at only about 19%. That is down from roughly 70% only a few weeks ago. Meanwhile, traders assign about an 85% chance of a hike by December. Reuters

That tells us where the consensus has settled.

October is probably a hold.

December is supposed to be the next move.

Of course, anyone who has watched Fed probabilities this year should know better than to treat either number as a forecast.

October went from probable to unlikely in a matter of days.

December can do exactly the same thing.

What Would It Take?

Economists expect September headline CPI to rise to about 3.7% year over year, largely because of higher energy costs. Core inflation is expected near 2.5%. Reuters

Neither number would be particularly good.

Headline inflation moving from 3.4% to 3.7% certainly isn't progress toward 2%.

But it probably isn't enough to produce an October hike either.

The Fed now has the weaker September employment report as a counterweight. Payroll growth slowed sharply, wage growth moderated and unemployment rose to 4.2%. Several Fed officials have already indicated they would prefer to gather more information rather than hike at consecutive meetings.

JPMorgan's chief economist recently put the threshold plainly: it would probably take a very strong CPI report to make October a live meeting again. Reuters

That seems right.

A headline number of 3.7% with core around 2.5% probably produces plenty of discussion and no action.

Even 3.8% might not be enough if most of the increase comes from gasoline.

Something clearly worse—particularly a hot core reading showing inflation spreading beyond energy—would make things considerably more uncomfortable.

Headline Versus Core

This is where Wednesday could become another exercise in choosing the inflation statistic that supports the preferred policy.

If headline CPI jumps because gasoline and diesel prices surged, the Fed can argue that monetary policy cannot manufacture crude oil or reopen shipping routes.

Look through the energy shock.

Watch core.

Wait.

That would make an October pause relatively easy to defend.

But Cleveland Fed President Beth Hammack is already warning that inflation is becoming broader than energy. She says businesses in her district are planning price increases that exceed their rising costs, while AI-related demand is pushing up prices for electronics, construction components and electrical equipment. Reuters

That is harder to dismiss as an oil problem.

If Wednesday shows core inflation accelerating too, the Fed's argument for patience begins getting thinner.

Not necessarily thin enough for October.

Possibly thin enough to make December much closer to inevitable.

The Market May Care More Than the Fed

This is why the CPI report still matters enormously even if Warsh has essentially made up his mind.

The Treasury market has been far less patient than the Fed.

The 10-year recently reached its highest yield in roughly 24 years. The 30-year broke through 5.7% before finally attracting meaningful buying.

A hotter CPI report could restart that move very quickly.

The bond market doesn't have to wait until October 28.

It can raise rates Wednesday morning.

That distinction has become increasingly important this year.

The Fed controls the overnight rate at 3.75% to 4.00%.

The market determines whether Washington borrows for ten years at 5%, 5.3% or 6%.

And the long end increasingly seems concerned about more than the next FOMC meeting.

Inflation.

Federal deficits.

Treasury supply.

Oil.

AI capital spending.

The term premium.

All of those remain in the equation whether Warsh hikes this month or waits until December.

So a 3.8% CPI reading could produce an interesting result:

October hike odds remain relatively low...

while the 10-year moves higher anyway.

That would reinforce the message the bond market has been sending for the past month.

The Fed may be able to wait. Lenders don't have to.

The Other Surprise

A soft CPI report could be more interesting.

Suppose headline inflation comes in at 3.5% or 3.6% and core remains subdued.

October disappears completely.

December odds fall sharply.

Treasuries rally.

Technology stocks probably celebrate.

Gold and silver could recover as yields decline.

That would give Warsh almost everything he wants.

Inflation showing signs of improvement.

Employment cooling.

No need for another immediate hike.

The possibility of simply holding rates at today's level and allowing time to do the work.

For WUCO, that would be the ideal report.

But one softer month would not erase the energy shock already moving through the economy.

Brent crude remains around $105 even after Tuesday's decline, and Middle East supply risks have not disappeared. Reuters

The next several CPI reports may matter more than this one.

December Is Far From Certain

Markets currently assign roughly an 85% probability to another hike by December.

That seems remarkably confident considering what happened to October.

There are almost two months between now and that meeting.

Another employment report.

Another CPI.

Another PPI.

More oil prices.

More war headlines.

More consumer data.

Plenty of opportunities for the economy to weaken.

If payroll growth remains near September's 29,000 pace and unemployment continues climbing, December could disappear just as quickly as October did.

Then the question changes completely.

Was September's 25-basis-point increase the beginning of a tightening cycle?

Or was it the final hike before the economy slowed enough to make additional tightening politically and economically difficult?

It is still too early to know.

The Fed itself seems divided.

Hammack wants policy made restrictive relatively quickly to prevent inflation from becoming entrenched. Other officials, including New York Fed President John Williams and Vice Chair Philip Jefferson, have emphasized waiting for additional data. Reuters

Warsh so far has generally chosen patience whenever the numbers give him room.

That makes October fairly easy to handicap.

The Bigger Risk Comes Later

The danger remains the one we have been discussing for weeks.

If energy inflation works its way slowly through the economy, waiting for incontrovertible evidence means waiting until the damage is already visible.

Freight prices rise.

Manufacturing costs rise.

Food distribution becomes more expensive.

Businesses gradually pass those increases through.

By the time CPI clearly reflects all of it, September's quarter-point hike has been working through the economy for months and the Fed may find itself debating another token 25 basis points against inflation that has already moved considerably higher.

That is reactive monetary policy.

It may still work if the energy shock fades and the economy slows naturally.

The weaker employment report suggests that may already be happening.

High gasoline and diesel prices drain disposable income. High mortgage rates crush housing affordability. Treasury yields above 5% tighten financial conditions without help from Warsh.

Perhaps the economy cools enough to do much of the Fed's work for it.

If so, December's supposed 85% hike could eventually turn into another hold.

And sometime in 2027, the discussion could swing all the way back toward cuts.

We have already watched expectations make one complete round trip this year.

There is plenty of time for another.

Wednesday Still Matters

So Wednesday's CPI report matters.

Just probably not for the reason everyone keeps saying.

It is unlikely to determine whether Warsh raises rates in October unless inflation is dramatically worse than expected.

That decision increasingly looks like a hold.

Instead, CPI will tell us whether the pressure is building toward December—and perhaps more importantly, whether the long bond market was justified in pushing yields to levels not seen in decades.

A benign report gives everyone some breathing room.

A hot headline with a tame core gives Warsh an excuse to wait.

A hot headline and hot core number creates a much more difficult problem.

And if the latter arrives while markets still refuse to price an October hike, watch Treasury yields.

The Fed may have decided it can skip a meeting.

The bond market gets to vote every day.

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