This week's inflation data was not ideal. Core CPI inflation is now up to 3.1% and both headline and Core PPI inflation are above 3.0%. As seen in the below chart, per Zerohedge, PPI inflation is clearly re-accelerating. But, here's where it gets even more interesting.

The question has shifted from IF the Fed will cut rates. It is now, HOW MANY rate cuts will we get? As shown below, there is now a 94% chance of a rate cut in September 2025 with markets pricing in a BASE CASE of 3 cuts in 2025. This comes as inflation is rebounding.

And, Trump says that's nothing. President Trump is now calling for a 300 basis point interest rate cut, immediately. This would be 3 TIMES larger than the 100 bps cut on March 15th, 2020, the largest in history. Fed Chair Powell is refusing to do so, for now.

However, President Trump has said that he is narrowing down his list for the next Fed Chair. Fed Chair Powell's term will end in May 2026, and the new Fed Chair announcement is coming soon. Markets will begin trading off what the new Fed Chair guides over Fed Chair Powell.

This is clearing a path for Trump to get rate cuts, even as inflation re-accelerates. He wants rates down to 1%. If this happens, mortgage rates will fall toward 3% and already record high housing prices will explode. In our view, home prices would surge by 10%+ in year 1.

The near-term effects on equities would also be explosive. 300 basis points of rate cuts would send the S&P 500 well above 7,000. But, it would come at a substantial cost, as we would expect CPI inflation to exceed 5.0% within a year of such drastic rate cuts.

And, here's the even bigger problem. Services inflation surged +1.1%, led by +3.8% in margins for machinery/equipment wholesaling. Fresh and dry vegetables also surged +38.9%, leading goods inflation. Why is this so bad? It's the first sign of tariff-induced inflation.

Trump's argument is that cutting rates would reduce US interest. If the rate on ALL $29T in public debt was cut by 300 bps, the US could save $290B × 3 = $870B/year. But, refinancing all of this debt ASAP would be impossible. 20% could be refinanced in year 1 to save ~$174B.

So now, Trump wants immediate rate cuts to lower interest expense on US debt. But, tariffs are adding to inflation and the Fed would be cutting into hot inflation data. With the trade war clearly here to stay, 300+ bps of rate cuts would create an unprecedented situation.

Yesterday's news won't make it any easier. The US Treasury posted a $291 billion budget deficit in July, the 2nd-largest deficit for any July on record. US interest expense is set to exceed $3 billion PER DAY. Without rate cuts, interest will skyrocket, adding more pressure.

As rate cuts near, we expect to see explosive moves across various markets. This is setting up for a historic 2026 for investors, with even more volatility. Want to see how we are trading it? Subscribe below to our premium analysis: http://thekobeissiletter.com/s...

Trump's new Fed Chair will clearly be cutting rates. However, the question becomes, will this new Fed Chair maintain rate cuts if inflation continues to rise? If so, we are about to witness history. Follow us @KobeissiLetter for real time analysis as this develops.

@KobeissiLetter Stop printing money and inflation stays tame.

@KobeissiLetter Federal reserve is truly in a shitty spot

@KobeissiLetter I dont understand the core CPI. it has to be based on food and energy. you cant exclude it

@KobeissiLetter Crash in coming

@KobeissiLetter No way Powell cuts rates and you know it. Ppi leads cpi. Trump will not cutt 300bps and u know it. Art of deal says 60% tariffs to get 15-20%. Says 300bps to get 1%. You must be long and position underwater....

@KobeissiLetter Good write up, however, it's not tariffs, it's continued money printing (M2).

@KobeissiLetter THE K-SHAPED ECONOMY WILL GET STEEPER ON BOTH SIDES PLAN ACCORDINGLY

@KobeissiLetter Powell under pressure here

@KobeissiLetter A big problem we’re facing too is supply adjustment. For utilities, up 13.8% YoY, higher rates are actually accelerating increasing prices. We have idiosyncratic demand via AI and rates are constricting grid investment. Tug and pull.

@KobeissiLetter Who would have thought massive deficits would be financed with inflation?

@KobeissiLetter Cancel the multi-billion dollar construction project on the fed building(s) and stop printing money!

@KobeissiLetter What Trump really wants to do is to fool investors and lenders.

@KobeissiLetter Its all manipulation n fabrication Its the perfect narrative game play going on A day will come in future when the world will know that this government was the biggest manipulators

@KobeissiLetter @grok is it as simple as just cutting rates? My impression is jobs weren't looking great either so cuts might not have the desired effect overall

@KobeissiLetter Imagine what it would be like without tariffs.

@KobeissiLetter only a nuke from Iran or Pulter can change the sentiment now

@KobeissiLetter The answer is deflation

@KobeissiLetter Historically, cutting rates by 300bps with core CPI and PPI both over 3% is rare and signals extreme circumstances—usually crisis, not normal easing. Markets often brace for volatility: stocks can dip on inflation fears, but risk assets and crypto can surge if liquidity floods

@KobeissiLetter Markets are about to get very interesting.

@KobeissiLetter Lol, it's been awhile we had these dips

@KobeissiLetter Can you imagine the market response to an instant 300 basis point cut ?!!

@KobeissiLetter What comes next is stress. All eyes on September

@KobeissiLetter Increase seems isolated to "services". Everything else in the number looks to be running just fine.

@KobeissiLetter Nothing matters