Wall Street thought the hiking cycle was over. Now Kevin Warsh has his ‘back against the wall’

Key Points:

• Wall Street is increasingly anxious as oil prices rise above $100, bond yields surge, and inflation data comes in hotter than expected, intensifying pressure on credit markets ahead of the Fed's upcoming meeting.
• Fed Governor Christopher Waller indicated that even a slight acceleration in inflation could prompt a rate hike, and August's CPI data showed core consumer prices rising 0.3%, surpassing expectations.
• The probability of a quarter-point Fed rate hike next week has increased to about 85%, with the 10-year Treasury yield approaching the critical 5% level, while stock markets responded positively to the report.
• A significant driver of the inflation increase was a 5.9% surge in wireless telephone service prices, the largest ever recorded, contributing notably to the core CPI rise, although smartphone prices actually declined.
• Investors are concerned that the inflation surprise, combined with rising bond yields and $100 oil prices, could tighten financial conditions further, challenging the sustainability of the current AI-driven stock rally amid renewed expectations of Fed tightening.