The US economy is growing at a moderate pace with a firm labour market. Inflation has turned back up on the back of an oil shock. The Federal Reserve raised rates on 16 September for the first time in more than three years. Short-dated Treasuries have repriced sharply. Credit spreads, equity volatility and broad financial conditions have not.
All series from FRED, Federal Reserve Bank of St. Louis. Latest observations 5 to 22 September 2026
The scorecard, latest reading and what changed
| Indicator | Latest | Period | Change | Read |
|---|---|---|---|---|
| CPI, headline | 3.35% y/y | Aug | +0.40% m/m | Energy has pushed headline back above 3% |
| CPI, core | 2.45% y/y | Aug | +0.29% m/m | Underlying goods and services still cooling |
| PCE, core | 3.34% y/y | Jul | +0.25% m/m | The Fed's gauge is running well above target |
| PPI, final demand | 5.41% y/y | Aug | +0.40% m/m | Pipeline pressure is still building |
| Real GDP | 1.5% q/q ann. | Q2 | 2.1% y/y | Growth below trend but positive |
| Real retail sales | +0.84% m/m | Aug | +2.58% y/y | Consumers still spending in real terms |
| Housing starts | 1.275m ann. | Aug | -2.6% m/m | Rates are biting on housing |
| Unemployment rate | 4.1% | Aug | flat | Matches the June 2025 low |
| Nonfarm payrolls | +162k | Aug | 3m avg +71k | A rebound after a soft summer |
| Initial claims, 4-week avg | 203,250 | w/e 12 Sep | latest week 196k | No sign of rising layoffs |
| Fed funds target | 3.75 to 4.00% | 17 Sep | +25bp | First hike in more than three years |
| 10-year Treasury | 4.96% | 21 Sep | +23bp since 28 Aug | Near a 19-year high |
| 10-year minus 2-year | 0.25pp | 22 Sep | from 0.40 on 1 Sep | Bear flattening, the front end leads |
| High-yield spread | 2.66% | 21 Sep | range 2.63 to 2.76 | Credit is not pricing stress |
| Chicago Fed NFCI | -0.555 | w/e 18 Sep | easier than June | Conditions easy despite the hike |
FIRST READDivergence Watch
The brief opens with the places where the bond market and the equity market are telling different stories. Agreement is comfortable. Disagreement is where one side will eventually be proved wrong and where positioning risk sits.
Fixed income read against equity read
| Signal | Fixed income read | Equity and credit read | Verdict |
|---|---|---|---|
| 2-year Treasury +42bp in three weeks | Pricing more Fed hikes after the September move | S&P 500 at 7,765 on 22 Sep, VIX 14.9, no stress | SPLIT |
| WTI oil $107, up 27% since 28 Aug | 10-year breakeven only 2.33%, market treats the shock as temporary | Input-cost risk for margins largely ignored | SPLIT |
| Fed hikes while NFCI loosens | Policy tightening at the short end | Financial conditions at their easiest since June | SPLIT |
| Credit spreads HY 2.66%, IG 0.77% | No default stress, spreads near cycle tights | Risk appetite intact | AGREE |
| Claims low, payrolls +162k | Supports further tightening | Supports earnings | AGREE |
| Housing starts down, mortgage 6.95% | Rates are biting on the most rate-sensitive sector | Housing-linked equities under pressure | AGREE |
The three splits share one root. The bond market believes the Fed will keep leaning against oil-driven inflation. Equity and credit markets believe the tightening will be brief and harmless. Both cannot be right for long. If front-end yields keep rising and the curve keeps flattening, the equity side is the one more likely to adjust.
Regime scorecard, score from -2 to +2
01INFLATION
What moved. Headline CPI rose 0.40% in August and 3.35% over the year, back above 3% since March after dipping to 2.39% in January. Core CPI rose 0.29% on the month and 2.45% on the year, its slowest annual pace in the past twelve months. Core PCE, the Fed's preferred gauge, rose 3.34% in the year to July. Producer prices for final demand rose 0.40% in August and 5.41% over the year.
What it means. This is an energy shock layered on top of sticky underlying inflation. Core CPI is cooling while headline and producer prices are running hot, which is the fingerprint of oil. WTI crude closed at $107 on 15 September, up about 27% from $84.57 on 28 August. None of that September move is yet in any published price index. Core PCE is running about a point above core CPI, an unusually wide gap. For a policy maker the gauge that matters is the higher one.
Inflation, % year on year. Toggle a series.
What would change the read. If September CPI, due 14 October, shows headline above 0.5% on the month while core stays at or below 0.3%, the oil shock is passing through as expected and the Fed can treat it as temporary. If core CPI also prints above 0.3% for two consecutive months, the shock is spreading and a second hike before year-end becomes the base case.
02GROWTH
What moved. Real GDP grew at a 1.5% annual rate in the second quarter after 2.1% in the first and 2.1% over the year. Real retail sales rose 0.84% in August and 2.58% over the year. Housing starts fell to a 1.275 million annual rate in August, down from 1.439 million in June, while the 30-year mortgage rate climbed to 6.95% on 17 September from 6.65% a month earlier.
What it means. Growth is below its long-run trend of about 2% but firmly positive. The consumer is doing the heavy lifting. Housing is the one sector where higher rates are clearly biting. The September jump in mortgage rates came after the August starts data. The economy is expanding at a pace that gives the Fed room to tighten without an immediate growth scare.
What would change the read. The advance estimate for third-quarter GDP arrives in late October. A print below 1% annualised alongside a second monthly fall in real retail sales would move the growth score to zero and weaken the case for further hikes.
03LABOR MARKET
What moved. Nonfarm payrolls rose 162,000 in August, with private employers adding 127,000 and government 35,000. That followed a soft summer, with gains of 31,000 in June and 21,000 in July, so the three-month average is 71,000. The unemployment rate held at 4.1%, matching its low of June 2025. Initial jobless claims fell to 196,000 in the week to 12 September, with the four-week average at 203,250. Continuing claims dropped to 1.73 million, the lowest reading since at least May.
Monthly payroll change by sector, thousands
What it means. The labour market is firm enough to support spending and not tight enough to drive wage-led inflation on its own. The earlier concern that rising claims signalled cracks has not been borne out. Claims have fallen since August and the real-time Sahm rule indicator sits at -0.07, far from its 0.50 recession trigger. For the Fed this removes the main argument against tightening.
What would change the read. Initial claims above 220,000 on the four-week average for four consecutive weeks, or a three-month payroll average below 50,000, would signal that the hike is starting to cool hiring.
04POLICY & FINANCIAL CONDITIONS
What moved. The Federal Reserve raised its target range by 25 basis points to 3.75% to 4.00% on 16 September, effective the next day. The effective funds rate moved to 3.88%. Since 28 August the 3-month bill has risen 27 basis points, the 2-year 42 and the 10-year 23. The 10-year stood at 4.96% on 21 September, the 30-year at 5.29% and the 10-year real yield at 2.62%. Meanwhile the Chicago Fed's National Financial Conditions Index eased to -0.555, close to its loosest level since June.
Treasury yield change, 28 August to 21 September, basis points
What it means. The Fed is tightening and the front end of the curve is pricing more to come. Financial conditions are moving the other way because equity prices, tight credit spreads and low volatility dominate the index. When conditions ease while policy tightens, the Fed usually has to do more to get the same effect. That is the core reason the bond market is pricing further hikes.
What would change the read. A move in the NFCI above -0.45 within six weeks would show the hike is finally tightening conditions. A 2-year yield back below 4.50% would signal the market has stopped pricing a second hike.
05BUSINESS CYCLE OUTLOOK
The cycle is in mid-to-late expansion. Growth is positive and below trend, unemployment is low, claims are falling and the Sahm rule indicator is negative. None of the standard recession signals are flashing.
The yield curve is the indicator to watch. It is still positively sloped at 0.25 percentage points. It has flattened by 15 basis points in three weeks for the classic late-cycle reason, a central bank raising short rates into an inflation shock. The previous brief read the slope as re-steepening. The data since then has reversed that.
Two notes on method. The leading index used in earlier briefs had not updated since 2020 and is replaced here by the real-time Sahm rule indicator. The previous brief also quoted index-point changes, which cannot be compared across series. Every figure in this issue is a rate of change.
What would change the read. A 10-year minus 2-year spread below zero would put the curve back into inversion and move the outlook to late cycle with rising recession risk on a 12 to 18 month horizon.
06BUSINESS & CAPITAL FLOW IMPACT
For bond portfolios. The front end carries the policy risk and the long end carries the inflation risk. With the 2-year at 4.76% and 3-month bills at 4.17%, investors are paid to stay short while the Fed decides whether one hike is enough. Extending duration makes sense only for those who believe the oil shock fades by early 2027 and that the Fed stops at one move.
For credit. High-yield spreads at 2.66% and investment-grade at 0.77% leave very little cushion if the Fed has to do more. The asymmetry favours higher-quality credit. Tight spreads pay little for the risk that the split in Figure 2 resolves toward the bond market.
For equities. Equities are pricing the benign version of this story. The S&P 500 closed at 7,765 on 22 September with the VIX near 15. That is sustainable if September inflation shows the oil shock staying out of core prices. It is vulnerable if core accelerates and the front end pushes toward another hike.
For corporate treasurers and capex. Loose conditions still let strong borrowers raise money cheaply. Housing shows how quickly that changes once mortgage and loan rates move. Companies with 2027 refinancing needs have a narrow window before any further tightening feeds through to spreads.
For Malaysia. A US 10-year near 5% against a 10-year MGS at 3.93% widens the gap that foreign investors weigh when they hold ringgit bonds. August brought record foreign inflows into Malaysian bonds. A second Fed hike would test them. Domestic savers remain the anchor, as Who Owns the Bond Market sets out.
The one-line read
Rates are pricing a Fed that has to lean against oil. Credit and equities are pricing a Fed that stops at one. The next core CPI print on 14 October decides which side adjusts.
Capital Compass is the institutional research unit of Trailblazer Empire. This brief is educational and does not constitute investment advice or a recommendation to buy or sell any security. Data from FRED, Federal Reserve Bank of St. Louis, retrieved 23 September 2026. Series are subject to revision. Regime scores and reads are Capital Compass judgments. Use of this site is subject to our Terms of Use and Privacy Policy.