Fed Walking Into ‘Mistake’: Economist Warns What Happens Next | Anna Wong

Summary

David Lin interviews Anna Wong, Chief U.S. Economist at Bloomberg Economics, about the August CPI report, Fed rate-hike odds, oil/diesel inflation, Treasury buybacks, and the fragile US recovery. Wong argues the Fed is boxed in by hawkish guidance and market pricing, and that a hike next week would be a mistake. She sees disinflationary forces, possible oil relief if Iran de-escalates, and says long-end yields have already done much of the Fed's tightening. She also warns high yields are pressuring housing and that AI capex's GDP contribution is peaking.

• August headline CPI rose 0.4% m/m and 3.4% y/y; core rose 0.3%, hotter than expected.
• Anna Wong attributes much of the core surprise to one-off wireless phone and hotel price jumps while rents, food, and medical commodities disinflate.
• Market-implied odds of a Fed hike next week jumped to about 80-90%; Wong thinks hiking would be a mistake and only expects one hike this year.
• Oil/diesel/gasoline supply shock is adding to headline inflation and transport costs, but a potential Iran/Gulf de-escalation could bring crude down and quickly reverse the inflation scare.
• Treasury Secretary Bessent's expanded $6B buyback disappointed markets; Wong says long-end liquidity is poor but Treasury still has firepower and may ultimately impact yields.
• Wong says 10-year yields near 5% are restrictive and have already done much of the Fed's tightening; housing is cooling rapidly.
• AI capex contributed about 1pp to first-half GDP but its growth-of-growth has peaked, with a smaller GDP contribution likely next year.
• Fiscal dynamics, including a 6% deficit and tariff revenue debate, remain a key US risk.