The Fed's cure for inflation might be inflationary, which is fun when diesel hits $6 and gold just shrugs · Daily Briefing

In 30 seconds: Analysts debate whether Fed rate hikes are themselves inflationary given the US government's $40 trillion debt load and structural deficits, with the fiscal year showing $4.8T in receipts against $6.8T in spending and household net worth hitting a record $195.9 trillion. Houthi strikes on Saudi Arabia's East-West pipeline, ongoing Strait of Hormuz tensions, and disrupted Russian output have pushed Brent crude above $120 per barrel and US diesel to record highs, with GCC nations weighing emergency diplomacy with Iran. August CPI came in slightly hotter than expected at 3.4% headline and 0.3% core monthly, pushing market odds of a Fed rate hike at the next meeting above 85-90% and reigniting debate about whether the Fed is behind the curve on inflation. On the 25th anniversary of the September 11 attacks, commentators reflect on how the post-9/11 wars eroded US credibility and global leadership, while polls show Americans have shifted their top concerns from terrorism to the economy and domestic governance.

There is a provocative argument circulating among macro analysts that goes like this: the Fed's conventional inflation-fighting tool, raising interest rates, has become the disease it purports to cure. The logic is straightforward: Hiking rates to 10% would give Boomers who own most of the $40T in US debt $4T a year in interest, or 11% of GDP in interest (proforma), and given that most of them will be dead in 10 years, Boomers will treat that $4T like a stimmy — rate hikes are inflationary now. The fiscal math underneath is grim. The conclusion: the choice is to slash rates and take inflationary pain that ends in 1-2 years and emerge healthier, or hike rates, get a brief respite from inflation, and then accelerate toward 1980s Brazil-type inflation dynamics. Futures pricing puts a 90% probability on at least one rate hike before election day, with 58% odds on exactly one and 31% on two. Household net worth hit a record $195.9T, up $12.3T in a single quarter, driven primarily by strong stock market gains. Stocks now represent nearly 50% of household financial assets. Gold closed at $4,392.60, up 0.64% on the day.

A suspected Iranian drone hit a pumping station on the Saudi east-west pipeline in April, forcing Riyadh to reduce throughput. The kingdom later said it repaired the damage in a matter of days, but this time the damage appears larger. Dated Brent crude: $120 per barrel. The supply picture is grim on multiple fronts. Saudi Arabia and Russia (the world's 2nd and 3rd top oil producers) suffered significant output drops in August due to the Iran and Ukraine wars, respectively. Combined output from those two producers has fallen by ~5.5 million barrels per day since January. Ukraine's attacks on Russia's oil refineries continue, compounding the Russian shortfall. Downstream, the pain is acute. US diesel has hit $6 a gallon, a record for the US national average diesel price. This matters because diesel is a critical economic input that fuels the trucks, cargo trains, and farm equipment that move the economy. The current diesel rally is different from the far spikier rallies of 2022 and March-April 2026. The demand side, at least, offers some theoretical relief. The IEA oil demand forecast shows ~2.5 million barrels per day of demand growth, a demand decline of ~1.7 million barrels per day in certain regions, and positive albeit mild growth of ~0.4 million barrels per day overall. Diplomacy may be stirring. Top diplomats of Gulf Cooperation Council members are weighing a face-to-face meeting with their Iranian counterpart next week to discuss the Strait of Hormuz. The GCC and Iran last met earlier this year.

The wage picture adds a layer of complication. Average hourly earnings rose to $37.75 as of 2026-08-01, a 0.27% increase on the month from $37.65 in July 2026. That is not a screaming number. It is, in fact, a fairly modest gain.

25 years ago, al-Qaida members destroyed the World Trade Center buildings and a wing of the Pentagon, launching a string of American actions, setting in motion a generation of policy choices whose returns are now being marked to market. The month after 9/11, terrorism was the top concern for Americans. Now, the economy and the US government itself are top of mind. That is a remarkable rotation in the national portfolio of anxieties, and it tells you something about how the compounding works. The immediate aftermath of the attacks was, paradoxically, a high-water mark. US leadership and power was at its peak after 9/11, not before. The country united as Americans hadn't experienced since World War II. It spent it. The forever wars cost lives and money. Not to mention America's credibility as a leader. This is the kind of trade that looks worse every year you hold it. Fewer than half of Americans think post-9/11 militarization and military operations have been worth it. When you poll a country on whether a quarter-century project was a good idea and the result is a coin flip, the project has not, by any conventional measure, delivered alpha. Rather than leveraging alliance structures built over decades, the US now bullies and pushes its allies aside.