The Saudi East-West pipeline is still shut. The Houthis keep poking at shipping off Yemen. The fight that started in the Strait of Hormuz now also sits on Bab el-Mandeb.
That is why American diesel printed a nominal record today: $6.27 a gallon. Adjusted for inflation, the June 2022 peak is still higher. Comforting, if you pay bills in 2022 dollars. Most people do not.
Brent is back around $107. Energy and freight get the first invoice. Then food, then wages if this drags. Energy is a fat slice of both CPI and PPI. Diesel in particular has been doing the heavy lifting in producer prices.
This is cost-push inflation from a supply shock, not a spending boom. It hits headline CPI and PPI first, through energy and freight. The risk the Fed actually cares about is the second round: if $6 diesel seeps into food, shipping surcharges, and wage demands, core inflation and PCE stop looking “temporary.” That is the leak they hike to contain.
One of the Fed’s jobs is price stability. When a temporary spike starts to move into core inflation, they tighten. Not because they enjoy it.
Trump wants a cut. He is not getting one tomorrow. The least-bad surprise he can hope for is that Kevin Warsh leaves the funds rate where it is. Markets are not pricing that. They are pricing a hike.
Warsh has been blunt: inflation is still the job. In Jackson Hole he said policymakers need to be confident it is heading to target at a decent speed. Otherwise they have work to do. That is not the language of a man about to gift the White House a cut the day after diesel prints a record.
Sweden still has a lever Washington does not. We can cut energy and fuel taxes and move every pump in the country. I wrote about that camouflage last week. It expires soon. America cannot hide a $100 barrel behind a national excise cut. It just shows up on the receipt.
I am not cheering a hike. I am saying the Fed is boxed in by its own mandate, not by a pipeline map. If they hold tomorrow anyway, that is the surprise.
Watch the statement, not the press-conference theater. If Warsh hikes and still sounds unfinished, the market already knows the next chapter. If he holds, someone has to explain why $6.27 diesel was not enough.