CPI hot core 0.3. Michigan 47.8. Hike locked in.

Catalyst check. Friday September 11. The last major data anchor before the September 15-16 FOMC blackout closed. Two US catalysts landed on the same session. First, August CPI at 8:30 AM ET: headline +0.4 percent month-on-month versus consensus +0.2, year-on-year +3.4 percent unchanged from July. Core (all items less food and energy) +0.3 percent month-on-month versus consensus +0.3, year-on-year +2.4 percent, up 0.1 percentage point from July's 2.3 percent. Gasoline component +3.9 percent, contributing over one-third of the headline all-items increase. Shelter +0.3 percent, up from July's +0.1 percent. Second, University of Michigan preliminary Consumer Sentiment for September at 10:00 AM ET: composite 47.8 versus consensus 51.0, down from August final 55.4. One-year inflation expectations 4.6 percent, up from August's 4.4 percent, highest since June. Five-year inflation expectations 3.4 percent, up 0.1 percentage point from August's 3.3 percent. Release times verified against the BLS Schedule of Selected Releases and the University of Michigan release calendar.

Thursday's piece read the hot PPI and firm Claims as tilting the distribution to hawkish-hike 65 percent, with Friday's CPI as the last data anchor to lock the setup. The tape delivered exactly that: CPI hot on both headline and core relative to what the front-end had priced coming in, Michigan five-year at 3.4 percent (unmoored territory), and DXY punching through 99.35. Hike odds firmed to 68 percent per OIS coming out of the double release, and the FOMC blackout closed at midnight with the distribution locked into hawkish-hike as the base case.

The tape

• DXY: 99.35, up 15 pips from Thursday's 99.20. Intraday high 99.58 in the twenty minutes after the CPI print; some retracement through the New York morning as the composition dampened the initial reaction; second push through 99.40 after the Michigan print at 10:00 AM ET; closed near the midpoint of the two moves. Third consecutive close inside the 99.00 to 99.60 band. The tape has now built the wedge that historically precedes a break of the 100 line.
• 10-year yield: 4.845 percent, up 1.7bp from Thursday's 4.828 percent. New thread high, above Tuesday's 4.806 by 3.9bp and above Thursday's high by 1.7bp. The 30-year up 2.3bp to 4.976 percent; the 2-year up 2.1bp to 4.429 percent. Curve mostly parallel-shifted higher rather than steepening further, which is the specific footprint of a print that lifted both real yields (via the core reading) and term premium (via the composition).
• Gold: $4,345.10, down $16.80 from Thursday's $4,361.90. Sixth consecutive session lower. First close below $4,350 since August 27. The $4,300 reference is now 45 dollars away.
• USD/JPY: 154.90, up 55 pips from Thursday's 154.35. First close above 154.80 since September 5. The pair is grinding higher on the CPI-driven dollar strength, but the move is only 55 pips despite a 15 pip DXY extension. The underperformance is the residual Regime 2 signal, meaning BoJ hike bets are still holding a wedge under the pair.
• EUR/USD: 1.1568, down 22 pips. GBP/USD: 1.3480, down 25 pips. Both proportionate to the DXY move.
• Brent CFD spot: $97.85, down $1.35. Aramco announced late Thursday that partial Jazan production would restart Saturday, which pulled some of the supply-shock premium out of the tape. Range $96.90 to $98.90.

The read

The CPI print delivered a specific pattern: headline hot (0.4 versus 0.2 consensus), core in-line (0.3 versus 0.3 consensus) but year-on-year up 0.1 percentage point, and the composition tilted decisively toward the components the Fed watches most closely. Shelter at +0.3 percent, three times July's pace, is the specific line that carries most of the sticky-inflation signal, and it is exactly the line Warsh has been naming in Q&A when asked about the persistence of core inflation. The gasoline component at +3.9 percent is the partial Jazan pass-through we flagged in Thursday's PPI transmission framework; more of that shock will land in the September CPI print on October 15.

Michigan is the operative variable for the FOMC's inflation-expectations dashboard. Five-year expectations at 3.4 percent, up 0.1 percentage point on the month, is above the Fed's tolerance band for anchored expectations. The FRBNY Consumer Expectations Survey we covered Tuesday printed 3.2 percent five-year, so the two headline expectations series are now roughly 20 basis points apart with Michigan on the high side. The Fed's reaction function to unanchoring is asymmetric: it takes several months of soft expectations to consider a policy pause, but a single Michigan print at 3.4 percent (highest since 1995 outside the 2022 peak) is enough to push the reaction function toward hawkish-hike immediately. See our inflation-expectations surveys framework for the mechanics of the Fed's reaction function to survey-based anchoring measures.

The composite consumer confidence at 47.8 is the weakest print since May's record low. That is the specific "consumer cracked but inflation expectations up" pattern that historically maps to a stagflationary read. The Fed's dual-mandate framework has to weigh a hot inflation print with hot expectations against a very weak confidence print; Warsh's stated framework says the inflation-expectations dimension dominates when it moves against the target. That is the framework's hawkish-hike case in one sentence.

Working thesis updates. Hawkish-hike at 68 percent (up from 65 percent Thursday). Hold-with-hawkish-language at 22 percent (down from 25 percent). Dovish-hold at 8 percent (unchanged). Dovish-cut at 2 percent (unchanged). The distribution is now decisively skewed toward hike, and the FOMC's remaining variable is the SEP dot plot median (the Fed's stated 2026 year-end funds rate projection).

Setup update

The FOMC blackout window closed at midnight Friday. From Saturday through the September 16 decision, no committee member speaks publicly on policy. The market can move on positioning, but no fresh Fed guidance will land. That means the setup for the September 15-16 meeting is now fully committed to the CPI plus Michigan read: hawkish-hike is the base case at 68 percent, hike-plus-hawkish-dots is the dominant sub-case, and the residual uncertainty is in the dot plot median rather than in the rate decision itself. See our CPI-plus-Michigan Friday framework for the mechanics of the double-release setup we saw today.

Confirmed if: DXY holds above 99.30 through Monday's London close (the setup stays priced), 10Y holds above 4.80 percent (term-premium footprint stays intact), and USD/JPY holds above 154.50 (BoJ hike bets stay firm but no longer dominate).

Invalidated if: DXY breaks 99.00 on the Monday close with a fresh negative-growth catalyst (weak Empire State plus weak NAHB is not enough on its own; the market is already priced for soft regional data). That combination reintroduces two-sided risk into the FOMC.

Watch this week: Monday September 14 delivers no major US data; the tape trades on positioning and headlines. Tuesday September 15 delivers Empire State Manufacturing at 8:30 AM ET, NAHB Housing Market Index at 10:00 AM ET, and FOMC Day 1 (no decision released, but positioning intensifies). Wednesday September 16 is the decision day: FOMC statement plus SEP plus dot plot at 2:00 PM ET, Warsh press conference at 2:30 PM ET, alongside Retail Sales and Industrial Production for August at 8:30 AM ET. Thursday September 17 delivers Weekly Claims, Housing Starts, Philly Fed at 8:30 AM ET, and BoJ Day 1. Friday September 18 delivers the BoJ decision (Tokyo morning), Existing Home Sales, and quad witching options expiration (approximately 7 trillion dollars of notional).

Nothing on this site is investment advice or a recommendation to trade. Setups published here are falsifiable hypotheses, not signals.