INTEREST RATE WATCH: The surge in yields is stunning with the 10 year now past 5.1% — it was only a couple months ago when traders were broadly doubting we would hit 5% and some of the largest fund managers pitched catching the knife at 4.8%. We recently changed our expected range to as high as 5.3% but this has been some flyaway selling, and I can see a scenario where we have to up our range again. Brent is past $105 and yields reach fresh heights with high correlations to oil. The bond market is not the diversifier as it used to be and too many investors still see corporates over sovereigns as a “safer” trade. I just think this is likely not the bottom.

A HIKING CYCLE BEGINS: In a unanimous vote, the Fed raised interest rates by a quarter of a percent, expecting GDP to rise next year and Fed funds to rise to 4.1% this year -- higher than the 3.8% projected in June. "The plain fact is that inflation is too high and has been for too long," Warsh says at the FOMC press conference. Watching the long end of the curve catch a bid. A unified Fed is able to capture more confidence in inflation fighting credibility, though there are certainly more uncertainties ahead.

INFLATION WATCH: With a critical jobs print behind us, CPI is the next big market moment before the FOMC meeting. Core CPI has been moderating of late, a bit closer to the Fed’s 2% target, coming in most recently under 2.5% — even if headline has been stung by energy costs. Food and commodities have also been surging. Economists surveyed by Bloomberg expect core to come in under 2.5% for the upcoming reading. Some wild cards: - Shelter costs. While there was a chance this could cool, it’s kind of unclear where housing costs head from here. Cloudy dynamics underneath the surface. - Spillover effects. How do we think about elevated energy prices? Consider that ISM manufacturing prices paid were elevated. Diesel costs could spillover, jet fuel is already. - Consumer resilience. Wage growth has been sluggish from a nominal perspective and retailers are reticent to keep passing prices on. Real wage growth has been very challenged, which has meaningful implications for an already K-shaped economy. One problem: Fiscal measures would have probably been the fix for consumer relief where it was needed, a more targeted approach than a blanket monetary fix to high prices that are largely food & energy related. But term premiums have been steadily rising meaning that the US balance sheet can’t afford to stretch further at this juncture — leaving the fix perhaps ultimately the hands of the Fed.