The Top Line
The economy is still growing, but prices are climbing again—and the new head of the Federal Reserve just signaled it may raise interest rates instead of cutting them. The big question: does the Fed hike on September 16?
We are operating in a late-cycle regime characterized by resilient growth colliding with reaccelerating inflation. Core PCE held at 3.3% and headline PCE climbed to 3.7% in July even as ISM manufacturing stays firmly expansionary near 55. New Fed Chair Kevin Warsh used Jackson Hole to call inflation “too high,” and markets now price a 65–68% chance of a 25bp hike to 4.00% on September 16. Sustained AI capex is underwriting earnings while a geopolitically driven oil spike to $87 WTI adds fresh price pressure.
Inflation
Inflation is the rate at which everyday prices rise, and lately it has stopped improving. Think of your grocery bill: it is still creeping up, not settling down, and a recent jump in oil prices could push it higher. The Federal Reserve—the U.S. central bank that sets interest rates to keep prices stable—is worried. To cool things down, it may raise rates, which makes mortgages and car loans more expensive.
Key Takeaway
Loans and mortgages could get more expensive soon rather than cheaper.
Inflation progress has stalled at an uncomfortable level. July headline PCE rose 0.2% on the month to 3.7% year-over-year, while core PCE also advanced 0.2% and held at 3.3% year-over-year, unchanged from June; CPI is running at 3.4%. On a six-month annualized basis the trend is hotter still, and roughly half of the PCE basket is now increasing at annualized rates above 3%—evidence that the disinflation of prior years has flattened rather than resumed.
The pressure points are broadening. Services and shelter remain the sticky core, but the more urgent development is a fresh energy impulse: WTI jumped 3.35% to $86.88 as renewed Middle East conflict and US–Iran tensions lifted crude. An energy shock of this kind risks feeding directly into headline prints and, if sustained, into inflation expectations that the Fed still describes as anchored.
Against this backdrop, Chair Warsh used his Jackson Hole keynote to sharpen the inflation warning, stressing commitment to “a discipline, not a decision” and explicitly setting aside the Fed's traditional reaction function. Markets responded by roughly doubling the odds of a September rate increase, from about 36% before the speech to 65–68% now, with the funds-rate upper bound seen moving from 3.75% to 4.00%.
Key Takeaway
The Fed's bias has turned decisively hawkish: with core PCE stalled at 3.3% and a fresh energy impulse in play, Warsh has put a 25bp hike to 4.00% on the table for September 16, now ~65–68% priced. Financial conditions remain paradoxically easy—tight credit spreads, low VIX—giving the Fed room to tighten further.
Risk and Positioning
A useful way to picture markets is a weather forecast: right now conditions look calm, but a storm may be forming. The market's fear gauge, called the VIX, is low, meaning investors seem relaxed. Yet that calm sits against real risks—the Fed may raise rates and oil prices are spiking. In short, investors are not being paid much to prepare for rougher weather.
Key Takeaway
Markets look calm on the surface, but there's little cushion if news turns sour.
Risk sentiment is best described as complacent-but-fraying. The VIX rose 3.54% to 14.93, yet that remains a historically low level—well beneath what one would expect given the market is now pricing a live rate hike into a slowing labor market. Equities gave back 0.33% on the S&P 500 to 7,686 but held near record territory after a solid August, signaling that positioning has not meaningfully de-risked despite the hawkish repricing.
Valuations and credit both reflect this comfort. Forward multiples on the index remain elevated by historical standards, and high-yield spreads sit near multi-year tights around 275 bps (OAS ~2.7%), with investment-grade similarly compressed—credit markets are pricing minimal default or liquidity risk. There is little defensive premium embedded anywhere in the risk stack.
The contradictions are worth flagging. Despite a hawkish Fed repricing, the dollar slipped 0.26% to 99.41 and gold held firm near $4,449, both counter to a textbook hike-odds move—consistent with inflation-hedge and geopolitical demand rather than pure rate mechanics. Implied volatility is not compensating investors for the combination of policy, energy, and event risk now stacked into September.
Key Takeaway
Implied volatility sits well below the risks on the tape: a VIX near 15 looks complacent against rising hike odds, a live oil shock, and an opaque Fed reaction function. Key tail risks are a policy error—tightening into slowing labor data—and a sustained energy spike that re-broadens inflation.
Sector and Cross-Asset Analysis
Different parts of the market are moving in very different directions. Oil and gas companies (XLE) led the way as crude prices jumped on Middle East tensions. Utility companies like electric and water providers (XLU) lagged, hurt by rising rates and a wildfire-liability law affecting PG&E. Tech companies (XLK) held steady, keeping the overall market from falling further.
Key Takeaway
Oil and gas is where the action is right now; steady-dividend stocks are lagging.
Leadership on the session was unambiguously energy. The Energy sector (XLE) was the clear standout as the crude spike lifted Chevron (CVX), Exxon (XOM), and peers, while Utilities (XLU) lagged—pressured by higher yields and idiosyncratic liability news as PG&E (PCG) sold off on new California wildfire legislation. Technology (XLK) traded roughly flat, holding the tape together even as the broad index slipped.
Breadth is narrow and rotating. Capital is moving out of rate-sensitive defensives and into energy and value on the back of the supply shock, a rotation that says the tape is being driven by rates and inflation rather than by a growth impulse. Cross-asset dynamics corroborate this: WTI +3.35% to $86.88, gold roughly flat near $4,449 despite hawkish repricing, the dollar softer at 99.41, and the 10Y up 2.4 bps to 4.75%.
Fixed income sent a measured signal. The 2Y eased 1.4 bps to 4.35% even as the 10Y firmed, leaving the 2s10s curve near +41 bps, while credit spreads stayed calm at multi-year tights—no stress showing beneath the equity rotation. The through-line: sector performance is being dictated by the energy/rates complex, not by cyclical earnings leadership.
Key Takeaway
Performance is concentrating in energy on a geopolitical supply shock, while rate-sensitive utilities lag on both higher yields and idiosyncratic liability news. The rotation out of defensives and into energy/value confirms that rates and inflation, not growth, are steering the tape.
Economic Data & Events
- 7:45 AM MT — S&P Global US Manufacturing PMI (a survey of factory activity) — Moderate Impact
- 8:00 AM MT — ISM Manufacturing PMI (a broader factory health gauge) — High Impact
- 8:00 AM MT — JOLTS Job Openings (how many jobs employers are trying to fill) — High Impact
A few reports come out today that measure the health of U.S. factories and the job market. The most important is the manufacturing survey at 8:00 AM MT, because a strong reading would make a rate hike more likely. Investors will read these numbers as clues about the Fed's September decision. The real headline event, though, lands Friday with the monthly jobs report.
Key Takeaway
Friday's jobs report is the week's main event—it could decide whether rates go up.
Today's Calendar
- 7:45 AM MT — S&P Global US Manufacturing PMI (Final, Aug) — Moderate Impact
Consensus: 53.2 (flash) | Previous: 53.9 (Jul final)
- 8:00 AM MT — ISM Manufacturing PMI (Aug) — High Impact
Consensus: 55.0 | Previous: 55.6
- 8:00 AM MT — JOLTS Job Openings (Jul) — High Impact
Consensus: 7.3M | Previous: 7.182M
Week Ahead
Friday's August jobs report is the marquee event—payrolls and wages will make or break the September hike case. The Warsh-led FOMC decides September 16; every high-frequency inflation and labor print until then carries outsized weight.
The Bottom Line
Expect a bumpy few days driven by headlines about oil and interest rates. The one thing to watch: Friday's jobs report, which could tip the Fed toward a rate hike.
Expect a choppy, headline-driven session. The 10Y at 4.75% is testing resistance toward 4.80%; a decisive break lifts pressure on equity multiples and rate-sensitive sectors. Watch S&P 500 support near 7,650 with resistance at the 7,720 highs. Energy should retain leadership on firm crude while utilities and long-duration tech stay vulnerable. A hot ISM or JOLTS print at 8:00 MT would harden hike odds and pressure risk into the close.
Disclosure — AI-Assisted Content & Regulatory Notice
This briefing was drafted with the assistance of artificial intelligence tools. All content has been reviewed and approved by Thomas MacPherson, Investment Adviser Representative (Series 65) and Chief Compliance Officer, River Rose Financial, LLC, prior to publication. AI systems may produce errors, omissions, or outdated information; readers should independently verify data.
Market Currents does not constitute an investment advisory relationship, does not create a fiduciary duty, and does not include personalized investment advice. Subscribers should not rely on Market Currents as a substitute for individualized financial advice. This briefing is for informational purposes only. Market conditions change rapidly; all data and projections are subject to revision without notice.
River Rose Financial, LLC is a registered investment adviser with the State of Colorado. Registration does not imply a certain level of skill or training. Past performance is not indicative of future results. All investment strategies involve risk, including possible loss of principal.
