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* FIEND'S SUPERBEAR MARKET REPORT *

* August 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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Good Enough for the Fed, Expensive for Everyone Else

Wednesday’s CPI report produced almost exactly the reaction outlined here the day before.

Consumer prices rose 0.1% in July, while annual inflation eased slightly from 3.5% to 3.4%. Core CPI increased 0.2% for the month and 2.5% from a year earlier. Every major number landed almost precisely on Wall Street’s forecast. Inflation remains well above the Fed’s 2% target, but it was not worse than expected—and that was all investors needed.

The S&P 500 and Nasdaq moved higher. The dollar weakened slightly. Gold and silver continued their recovery. And the probability of a September rate hike dropped to roughly 40% on CME FedWatch, while the Kalshi prediction market placed it closer to one chance in three.

The report was not good.

It was good enough.

That appears to be the new standard for inflation.

Anything Short of Disaster Is Now Dovish

Wall Street no longer requires inflation to return to 2%.

It merely needs inflation to avoid accelerating dramatically enough to force the Fed’s hand.

A 3.4% CPI reading is still roughly 70% above the stated target. But because the number matched expectations and core inflation edged down slightly, investors concluded that Kevin Warsh has another reason to remain on hold in September.

That conclusion will become even stronger if Thursday’s PPI report is reasonably contained. It will become stronger still if the August employment report shows another weak month.

The path is becoming easy to imagine:

September hike odds fall below 40%.
Then below 30%.
October becomes the next possible meeting.
Then December.
Then no hike at all in 2026.
Then, after another weak employment report, Wall Street begins discussing cuts in early 2027—or perhaps sooner.

The market does not need the Fed to cut today. It simply needs every expected hike to disappear one at a time.

The July CPI report provided the next step.

The Report Is Already Looking Backward

The biggest problem with the market’s celebration is that July CPI reflected the large decline in oil and gasoline prices that occurred during the latest temporary pause in the Middle East conflict.

Energy prices fell during July, helping lower the headline number. But energy prices were still nearly 15% higher than a year earlier, and the report does not fully reflect the subsequent rebound in crude oil and gasoline. The war continues, shipping remains disrupted, and another escalation could quickly send crude back toward $100.

So the market is using yesterday’s drop in gasoline prices to predict tomorrow’s inflation.

That may work if oil falls again and the Strait of Hormuz finally returns to normal operation.

There is little evidence of that today.

Iran and the United States remain divided over control of the Strait. Shipping traffic remains far below normal. Global inventories have been heavily depleted, and each new “agreement” seems to fall apart as soon as the parties explain what they believe they agreed to.

July’s inflation report may therefore represent the low point before energy begins pushing the numbers higher again.

Wall Street knows that possibility exists. It simply assumes the Fed will label any renewed increase temporary.

Oil inflation will be temporary because it is caused by war.

Tariff inflation will be temporary because companies will eventually adjust.

Insurance inflation will be temporary because comparisons will improve.

Housing inflation will be temporary because rents should eventually cool.

Every source of inflation has an explanation.

The consumer still has to pay the total.

The Long Bond Was Not Soothed

The short end of the Treasury market reacted exactly as expected. The two-year yield fell as traders reduced the likelihood of a September rate hike.

The long end was much less impressed.

After the initial reaction, the 30-year Treasury yield moved up to roughly 5.216%, compared with 5.185% before the report. The 10-year also edged higher from its pre-CPI level, while the two-year remained lower.

That is another steepening of the yield curve.

The short end is saying the Fed probably will not raise rates.

The long end is saying that may be the problem.

A central bank that remains on hold while inflation is above target may provide relief to stocks and short-term bonds. It does not necessarily reassure an investor lending money to the federal government for thirty years.

Long-term investors must consider persistent inflation, a national debt approaching $40 trillion, enormous Treasury issuance and a Fed that appears increasingly unwilling to impose the economic pain necessary to restore 2% inflation.

The 30-year yield remaining above 5.2% after a friendly CPI report is not a vote of confidence.

It is the bond market asking for more compensation because it does not fully believe the inflation story.

Gold and Silver Are Smelling the Same Bluff

Gold rose to approximately $4,407 Wednesday, its highest level in more than two months. Silver climbed above $65, and mining shares participated in the advance. The rally accelerated as September hike expectations declined and the dollar softened.

Gold and silver do not necessarily require rate cuts to move higher.

They may only require the market to conclude that the Fed’s promised hikes will never arrive.

The metals were crushed earlier this year when investors believed Warsh would prove to be a serious inflation fighter. The Fed has now held rates steady twice. September hike odds have fallen toward 40%, and Kalshi traders see only about a one-in-three chance of an increase.

Another weak employment report could remove September almost completely.

The metals appear to be anticipating that the Fed’s hawkish campaign will end with speeches rather than action.

That does not mean gold and silver will move straight back to their January highs. But the defense of $4,000 gold and $60 silver now looks increasingly important. The market tested those levels repeatedly, failed to break them decisively and has begun moving higher as confidence in future Fed tightening fades.

The bond market and metals market may be telling different versions of the same story:

The Fed will not tighten enough to restore price stability quickly.

Wall Street Gets the Hold; Consumers Keep the Interest

The stock market can celebrate an unchanged Fed rate.

Consumers experience that same decision very differently.

Total U.S. household debt stood at $18.771 trillion at the end of the second quarter. The headline balance declined by $13 billion, but that small drop was caused largely by a mortgage-reporting adjustment. Beneath the headline, credit card debt increased by $21 billion to $1.263 trillion, while auto loan balances rose by $28 billion to $1.713 trillion. Total household debt was $383 billion higher than a year earlier.

The Fed’s broader consumer-credit report shows the same pattern. Revolving credit increased at a 3.9% annualized rate during the second quarter and accelerated to a 6% rate in June. Consumers are continuing to add high-cost debt even though borrowing rates remain near modern extremes.

The average credit card rate across commercial-bank accounts was 20.94% in the latest Fed data. For accounts actually being charged interest, the average was 22.15%.

A household carrying a $10,000 balance at 22.15% pays approximately $2,215 a year—or nearly $185 a month—in interest before reducing a single dollar of principal.

That is the inflation rate that matters to a household living on revolving credit.

Even a quarter-point Fed cut would barely change the payment. A card charging 22.15% might eventually fall toward 21.90%, depending on the issuer and timing. The borrower would still be trapped in extraordinarily expensive debt.

The Fed remaining on hold may be bullish for stocks because it removes the immediate threat of tighter money.

For the person carrying a credit card balance, “on hold” means the punishment continues.

Delinquencies Are Stable—At an Elevated Level

The aggregate household numbers do not yet show a 2008-style collapse.

Overall, 4.7% of household debt was in some stage of delinquency during the second quarter, slightly better than the prior quarter. New York Fed researchers also emphasized that the pace at which borrowers are falling behind on credit cards has been broadly stable for roughly two years.

But stable does not mean healthy.

The annualized flow of credit card balances into serious delinquency was 6.97% in the second quarter, compared with 6.93% a year earlier. For auto loans, the serious-delinquency flow increased from 2.93% to 3.00%.

The New York Fed accurately describes those rates as largely stable.

They are stable at levels that remain painful for the households involved.

Aggregate statistics also conceal where the stress is concentrated. Higher-income households with fixed-rate mortgages and appreciating investment portfolios may be doing reasonably well. Lower-income and lower-credit borrowers are much more exposed to revolving credit, used-car financing, rent increases and energy prices.

The economy can therefore appear resilient in aggregate while millions of households are already experiencing something that feels like a recession.

The Auto Loan Problem Is an Affordability Problem

Auto lending deserves more attention because a vehicle is not an optional luxury for many American workers.

It is how they reach work.

The average new-car loan carried a 6.39% interest rate in the first quarter, with an average monthly payment of $770. The average used-car loan rate was 11.43%, with a payment of $531. The average new loan totaled nearly $44,000, while the typical used loan was just over $27,000. Loan terms averaged close to six years.

Those averages are difficult enough.

Borrowers with weaker credit face something much worse. Experian reported average used-car rates of 19.42% for subprime borrowers and 21.77% for deep-subprime borrowers. More than 35% of new-vehicle loans and nearly 32% of used-vehicle loans now extend beyond six years as buyers stretch the term to keep monthly payments barely manageable.

Longer terms reduce the monthly payment but increase total interest and leave borrowers underwater for longer. Cox Automotive reported that negative equity reached a record for a third consecutive month this spring. It also reported that the annualized auto-loan default rate reached 3.79% in March, the highest since early 2010, with total defaults running 9% above the prior year.

Comprehensive national repossession numbers are not reported as quickly or cleanly as delinquency data, so dramatic real-time claims should be treated cautiously.

But defaults are the pipeline that eventually feeds repossessions.

A borrower misses payments.
The loan becomes seriously delinquent.
The lender declares default.
The vehicle is repossessed and sold.
The borrower may still owe the difference between the loan balance and the auction proceeds.

Losing the car can then make it harder to keep a job, creating another missed payment elsewhere.

That is how an auto-loan problem can spread into a broader consumer-credit problem.

Record Auto Borrowing Is Not Necessarily Strength

Consumers originated $211 billion in auto loans during the second quarter, a nominal record. Auto balances rose to $1.713 trillion even as employment weakened and inflation-adjusted incomes remained under pressure.

That record can be interpreted as strong demand.

It can also be interpreted as buyers needing to borrow more because vehicle prices remain high.

A record loan amount does not automatically mean consumers are prosperous. It may mean the same necessary asset now requires more debt and a longer repayment period.

The same applies to credit cards.

Rising card balances can support retail sales and consumer spending today. They can also represent households borrowing to maintain living standards after food, insurance, utilities and fuel consume more of each paycheck.

Debt can postpone the slowdown.

It cannot eliminate the bill.

Another Weak Jobs Report Changes Everything

The next employment report may matter more than Wednesday’s CPI.

July payrolls fell by 23,000, and May and June were revised down by another 103,000 jobs. Labor-force participation dropped to its lowest level in more than five years. That report was enough to cut September hike expectations substantially even before CPI arrived.

Another weak report would make a September hike very difficult.

Wall Street would probably move quickly from expecting a hold to discussing when the first cut might arrive. The argument would be straightforward: inflation is easing, employment is weakening, and the Fed should not risk turning a slowdown into a recession.

The problem is that inflation would still be above target and the long bond might not cooperate.

The Fed could reduce short-term rates while the 10-year and 30-year remain high because investors fear persistent inflation, fiscal deficits and a weaker dollar. That would provide less relief to mortgages, auto loans and government financing than Wall Street assumes.

Credit card rates might eventually decline somewhat.

Long-term borrowing costs could remain punishing.

That is the Fed’s trap.

Good Enough for Whom?

Wednesday’s CPI report was good enough for the stock market.

It was good enough to reduce September hike odds.

It was good enough to lift gold and silver.

It was good enough to give Warsh another reason to wait.

It was not good enough to return inflation to 2%.

It was not good enough to lower a 22% credit card rate.

It was not good enough to make a $770 car payment affordable.

It was not good enough to prevent auto defaults from reaching their highest rate since 2010.

And it was not good enough to convince the 30-year bond market that the inflation problem is under control.

The Fed will probably remain on hold unless the next inflation reports are catastrophic.

Wall Street will treat that as a victory.

Consumers carrying credit cards and auto loans may experience it as another month of compound interest.

The CPI report gave investors exactly what they wanted.

The household balance sheet shows who is paying for it.

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