Another day, another politically motivated attack in the United States.

This morning’s shooting at a Dallas ICE detention facility – where a sniper killed two detainees and wounded another before taking his own life prompted me to revisit a question that’s been troubling me: Is political violence actually increasing in America, or does it just feel that way?

To explore this, I’ve conducted what I’ll call a methodological experiment.

Rather than relying on traditional datasets, I’ve used ChatGPT and Claude to construct a synthetic index of political violence in the US since 1945. Let me be absolutely clear: this isn’t conventional data. It’s data generated through language models, with all the limitations that implies.

The Methodology (and Its Limitations)

Here’s what I did: I asked both ChatGPT and Claude to generate lists of politically motivated violent incidents since 1945, then had them score each incident’s severity on a scale where 50 represents a “normal” level.

The models assessed both casualties and symbolic significance, and I used them to cross-check each other’s work. I then quality-checked the output myself and categorised perpetrators by political affiliation where this was clearly established.

This approach is, admittedly, unorthodox. Language models are trained on existing texts and may reflect biases in their training data. They might overweight highly publicised events or recent incidents that featured prominently in their training corpus.

The “data” we’re looking at is essentially a structured synthesis of what these models have absorbed about American political violence.

Yet there’s something intriguing here. These models have processed vast amounts of information about political violence – news reports, academic studies, government documents. Their output might capture patterns that traditional datasets miss, though it might also amplify certain narratives or blind spots.

What the Synthetic Data Reveal

With those caveats firmly in mind, the patterns that emerge from this exercise are concerning. The model-generated index shows a clear upward trend in political violence over the past decade.

Looking at the breakdown by perpetrator ideology (where clearly established), the data suggest that right-wing extremist groups have been responsible for the majority of incidents in recent years, though we cannot draw conclusions about today’s attack whilst investigations are ongoing.

The synthetic data align with some empirical observations. Princeton’s Bridging Divides Initiative recorded over 600 incidents of threats and harassment against local officials in 2024 – a 74% increase from 2022. The University of Maryland found that in the first half of 2025, 35% of violent events targeted U.S. government personnel or facilities – more than twice the rate in 2024.

The Charlie Kirk Assassination and Recent Patterns

The September assassination of conservative activist Charlie Kirk marked a particularly dark moment.

The incident followed numerous recent acts of political violence, including the murder of Minnesota Democratic state Rep. Melissa Hortman and her husband, and two assassination attempts on President Trump in 2024.

What the synthetic data reveal is not just increased frequency but a shift in patterns. While overall levels of physical political violence remained low in 2024 compared to years prior, acts of vigilante violence grew as a proportion of all reported incidents.

We’re seeing less organised group violence and more lone-wolf attacks – a pattern that’s harder to predict and prevent.

The Epistemological Challenge

When we use language models to generate “data” about social phenomena, what exactly are we measuring? We’re essentially extracting structured information from the collective corpus of human writing about these events. It’s aggregating distributed information, but through an AI intermediary rather than traditional data collection methods.

This raises fascinating questions.

The models suggest that right-wing extremist violence has been responsible for a fairly large majority of U.S. domestic terrorism deaths since 2001. But how much of this reflects actual patterns versus the way these events are covered and discussed in the sources the models were trained on?

The synthetic data are, in a sense, a mirror of our collective discourse about political violence. They reflect not just what happened, but how we’ve talked about what happened. That’s both a limitation and, potentially, a feature – understanding the narrative landscape around political violence might be as important as counting incidents.

An Experimental Tool

I’ve built an interactive app (using the AI coding tool Lovable) based on this language model-generated violence index.

Users can explore the synthetic data, examine patterns across different time periods and perpetrator groups, and understand the methodology behind it. Think of it as an experiment in using AI to structure historical information rather than a definitive dataset.

The value isn’t in treating this as gospel truth, but in what it reveals about how these events are recorded, remembered, and synthesised in our collective digital memory.

When language models trained on our civilisation’s text output show rising political violence, it tells us something – even if that something is as much about narrative as about underlying reality.

This morning’s tragedy in Dallas reminds us that behind every data point – whether traditionally collected or AI-generated – there are real victims and real consequences. Understanding the patterns, however imperfectly, is the first step toward addressing them.

Try the tool here.

The Argentine markets took a beating last week, but US Treasury Secretary Scott Bessent has rushed to the rescue with a remarkable promise: America will provide what amounts to unlimited support to prop up Argentina. His declaration that “all options for stabilization are on the table” – including swap lines, direct currency purchases, and buying Argentine government debt – represents an extraordinary blank check.

But here’s the real kicker: Bessent claims Argentina is “systemically important” to the United States. This is financial fiction at its finest.

The Systemic Importance Fairy Tale

Let’s be brutally honest: Argentina poses zero systemic risk to the US financial system. US banks have minimal exposure to Argentine debt. Trade between the two countries is negligible in the context of the US economy. If Argentina defaulted tomorrow, would Bank of America collapse? Would JPMorgan need a bailout? Of course not.

The “systemically important” label is being stretched beyond recognition. If Argentina qualifies, then virtually every country in Latin America – including those the Trump administration just hit with massive tariffs – should qualify too.

This isn’t about systemic risk; it’s about political preferences dressed up as financial necessity.

The Moral Hazard Machine

By offering essentially unlimited support to Argentina, the US is creating a massive moral hazard problem.

The message to Milei’s government is clear: Don’t worry about the hard work of building political coalitions or passing sustainable reforms through parliament. Uncle Sam will catch you if you fall.

This is precisely the wrong incentive structure. Argentina has defaulted on its sovereign debt nine times since independence. Nine times!

The country’s political economy is fundamentally broken, cycling through periods of populist spending followed by crisis and austerity. US financial support doesn’t fix this cycle – it enables it.

The Real Threat to US Financial Stability

Here’s the irony: While Argentina poses no systemic risk to the US, this bailout policy might. Not directly through financial contagion, but through the precedent it sets.

If the US Treasury is willing to provide unlimited support to a serial defaulter like Argentina simply because its president is friendly with Trump and speaks the MAGA language, what’s to stop other countries from playing the same game? Elect a Trump-friendly president, make the right noises about being an ally, and wait for the bailout when things go south.

This transforms the US Treasury into a global lender of last resort – not for genuine systemic crises, but for politically favored regimes. That’s a commitment the US cannot afford, especially when federal debt is already approaching dangerous levels.

The Buenos Aires Reality Check

The timing of Bessent’s announcement is telling. It comes right after Milei’s party got hammered in regional elections in Buenos Aires. The political message from Argentine voters was clear (rightly or wrongly): Milei’s policies aren’t working, and he lacks popular support for his reforms.

Rather than forcing Milei to build political consensus and pursue genuine institutional reforms, the US bailout allows him to double down on rule by decree. This is not sustainable governance. It’s political theater subsidized by American taxpayers.

Where’s the “America First”?

This is where the contradictions become absurd. The Trump administration came to power promising “America First” – putting American workers and taxpayers first, being tough on countries that don’t pay their fair share, and ending the era of the US playing global policeman.

Yet here we are, with a Trump-appointed Treasury Secretary promising unlimited support to a country that has stiffed international creditors nine times. How exactly does bailing out Argentine bondholders put American workers first? How does propping up a foreign government that can’t even win local elections serve US interests?

The Unlimited Commitment Problem

Perhaps most troubling is the open-ended nature of Bessent’s commitment. “All options are on the table” with no conditions, no limits, no requirements for structural reform. This isn’t a rescue package – it’s a blank check.

What happens when Argentina needs another injection in six months? Another one in a year? At what point does the US Treasury say “enough”? And when that moment comes as it inevitably will won’t the withdrawal of support trigger an even bigger crisis?

The Alternative Nobody Wants to Discuss

Here’s what should happen: Argentina should be allowed to face the consequences of its political and economic choices.

Yes, this means potential default. Yes, this means economic hardship. But it also means the country would finally be forced to confront its fundamental problems rather than papering them over with foreign money.

The IMF learned this lesson the hard way after multiple failed bailouts. Now the US seems determined to repeat the same mistakes, but with even less conditionality and oversight.

Conclusion

This isn’t about whether one likes or dislikes Milei. It’s about the dangerous precedent of the United States providing unlimited financial support to a country that poses no genuine systemic risk to the US financial system (or to the global financial system).

The moral hazard is obvious: Why should any country pursue painful but necessary reforms when they can simply wait for a bailout? Why should Argentina fix its institutional problems when the US Treasury stands ready to finance its dysfunction?

Ultimately, this policy doesn’t just threaten US financial stability through the direct cost of supporting Argentina.

It threatens the entire architecture of international financial responsibility. When “systemically important” becomes a political designation rather than an economic reality, and when bailouts come with no strings attached, we’re not promoting stability. The US taxpayers will be subsidizing instability.

The world is indeed upside down when an “America First” administration puts Argentine bondholders before American taxpayers.

PS Back in July I warned about Milei not being the miracle maker that some was making him up to be in my blog post Classical Liberals, Let’s Be Honest About Milei

The Federal Reserve cut rates by 25 basis points yesterday, bringing the fed funds rate to 4.00-4.25%, exactly as markets had expected. Stephen Miran – Trump’s recently appointed member to the FOMC- dissented, preferring 50bp.

Notably, the two other known “doves” on the committee, Christopher Waller and Michelle Bowman, voted with the majority rather than joining Miran’s call for more aggressive easing.

Markets barely moved, with for example the CME FedWatch tool continuing to price another 100-125bp of cuts by September 2026, unchanged from before the announcement. The immediate question isn’t whether the cut was justified. It’s a lot more fundamental: What exactly is the Fed’s nominal anchor?

Looking at the data, it appears the Fed has lost the nominal stability framework that served it well throughout the 2010s.

Without a clear nominal anchor, monetary policy risks becoming increasingly discretionary, politicised, and most dangerously subordinate to fiscal imperatives.

The Decade of Accidental Success

From 2010 to 2019, the United States enjoyed remarkable nominal stability. Few recognised it at the time (I how did – for example in this blog post in 2014) but the data tells a clear story.

Let me explain what we’re looking at. NGDP (Nominal Gross Domestic Product) is the total value of all goods and services produced in the economy, measured in current prices not adjusted for inflation. It’s the sum of real economic growth plus inflation, making it the best measure of total nominal spending in the economy.

PCE (Personal Consumption Expenditures) represents consumer spending, which accounts for roughly 70% of GDP. Since PCE data comes monthly while NGDP is only reported quarterly, I use PCE as a high-frequency proxy for NGDP trends.

The chart above shows an almost perfectly straight line at roughly 4% growth throughout the 2010s. The 3m/3m annualised growth rate fluctuated around its mean of 3.9% within a tight ±1 standard deviation band. This was, whether intentional or not, de facto NGDP level targeting.

The results were precisely what theory would predict. With trend real growth around 2%, that 4% nominal growth path delivered 2% inflation, confirming the basic identity: π ≈ g_NGDP – g_RGDP.

The Fed achieved its inflation target not through complex Phillips Curve calculations, but through stable nominal spending growth.

The Fed never acknowledged targeting NGDP.

They continued to emphasise their dual mandate and inflation target, conducting policy through the lens of unobservable variables like r* and u*. But regardless of the stated framework, the results were clear: stable nominal growth, on-target inflation, and no need for dramatic policy adjustments.

The Real Economy Normalised Quickly—As I Predicted

The COVID shock severely disrupted the real economy in 2020. But real shocks, by their nature, are temporary.

Back in May 2020, when most commentators were predicting a prolonged depression, I wrote on this blog that US unemployment would drop below 6% by November.

The reasoning was straightforward: this was a supply shock, not a demand shock, and market economies recover quickly from supply disruptions when monetary policy maintains nominal stability.

I was right. The labour market recovery was swift, just as economic theory predicted it would be.

By the end of 2021, the real economy had essentially normalised.

The unemployment rate had returned to NAIRU, and the output gap had closed. According to any standard framework (including the Fed’s own models) this is when monetary policy should return to neutral settings. The emergency had passed.

Yet policy remained highly accommodative well beyond this point.

From Deflation Fighter to Inflation Denier

My views on monetary policy rules have remained consistent. I’ve always advocated for rule-based policy targeting nominal stability.

What changed dramatically was my assessment of where the US economy stood relative to that rule.

From 2008 through 2020, I consistently argued that US monetary policy was less expansionary than widely believed – that we were below the optimal nominal path.

I welcomed the Fed’s initial response to the lockdown crisis, fearing a repeat of the 2008-9 deflationary shock.

However, by April 2021, the data forced me to completely reverse my assessment. In a blog post titled “Heading for double-digit US inflation,” I warned that we had swung from being below the optimal nominal path to being dramatically above it.

Using the P-star model and observing the massive growth in broad money supply, I predicted that inflation would surge far above the Fed’s target- potentially reaching double digits.

That forecast proved directionally correct, though inflation peaked at around 9% rather than breaking into double digits. The key insight was recognising that the Fed had allowed a massive ‘liquidity overhang’ to build up, and this would inevitably feed through to prices once the real economy normalised.

The Persistent Nominal Overshoot

Instead of returning to the pre-2020 trend after the real economy normalised, the nominal level shifted permanently upward. The PCE chart above shows this clearly.

Even if we generously re-anchor a new 4% trend from mid-2024, the level remains well above where it should be. This isn’t just about growth rates. It’s about the accumulated overshoot that hasn’t been corrected.

Only in 2025 has nominal growth finally begun to slow toward rates consistent with 2% inflation. But under proper level targeting, this isn’t sufficient.

When you overshoot the level target, you need a period of below-trend growth to return to the path. That’s the “make-up” principle that distinguishes level targeting from growth rate targeting. Instead, the Fed is cutting rates, effectively validating the higher nominal level.

Inflation: Still Closer to 3% Than 2%

The inflation picture confirms this diagnosis:

Since early 2021, core PCE has run persistently above the Fed’s 2% target. Even as it has moderated from its peaks, the trend remains closer to 3% than to 2%. With unemployment still relatively low, this pattern is consistent with excess nominal demand rather than supply disruptions. The supply shock excuse had validity in 2021-22, but not in 2025.

This persistent above-target inflation, combined with low unemployment, indicates that NGDP growth has been too high for too long. The Fed’s 2% target isn’t being achieved because nominal spending growth hasn’t been calibrated to deliver it.

The Elephant in the Room: Fiscal Dominance

What makes yesterday’s cut particularly troubling is the fiscal context. With US public debt-to-GDP above 100% and deficits running close to 6% of GDP, we’re approaching territory where the fiscal theory of the price level (FTPL) becomes relevant.

When markets doubt that future primary surpluses will back current debt levels, the price level must adjust upward regardless of central bank actions.

The Fed appears to have already surrendered to fiscal dominance. Rather than acting as a counterweight to fiscal excess, they’re accommodating it. This isn’t just poor monetary policy; it’s an abdication of institutional responsibility that risks far more than near-term inflation.

The Dollar’s Ticking Clock

Throughout 2025, I’ve warned that we’re witnessing the early stages of a potential challenge to the dollar’s reserve currency status (see here).

This “exorbitant privilege”—which allows the US to finance deficits cheaply and conduct monetary policy with unusual freedom depends entirely on foreign confidence.

As I noted in February when Trump announced his tariff plans, the combination of weaponising trade policy, political pressure on the Fed, and ballooning fiscal deficits creates precisely the conditions that historically have preceded reserve currency transitions.

We saw it with the Dutch guilder giving way to sterling, and sterling eventually ceding to the dollar.

Markets Expect Substantial Further Easing

The CME FedWatch tool shows the modal expectation for September 2026 remains centred around 3.00-3.25%, implying another 100-125bp of cuts from current levels—essentially unchanged from before yesterday’s announcement. Markets assign essentially zero probability to rates being higher than today.

This market pricing suggests the 25bp cut was so thoroughly anticipated that it contained no new information.

The real signal is what this persistent expectation of further easing implies: markets believe the Fed will continue accommodating the elevated nominal level regardless of inflation dynamics. If this occurs alongside continued fiscal deficits and no correction to the nominal overshoot, we could see:

• Long-term yields disconnecting from short rates as term premia explode
• Dollar weakness despite interest rate differentials
• Commodity price surges as investors seek real assets

The Case for NGDP Level Targeting

NGDP level targeting would address all these challenges simultaneously. With a 4% NGDP level target (consistent with 2% inflation given 2% trend real growth), policy would aim to run nominal growth at or slightly below 4% until the level gap closed. This is the systematic “make-up” strategy that level targeting requires – no bygones being bygones.

Moreover, NGDP level targeting elegantly handles supply shocks – a particularly relevant consideration given potential tariff changes ahead.

Under a nominal spending target, relative prices adjust to supply shocks while total spending remains stable. Temporary inflation from tariffs wouldn’t trigger monetary tightening that could cause an unnecessary recession. The central bank would focus on its proper role: providing nominal stability, not trying to offset relative price changes.

As I’ve argued since 2011, the implementation could be straightforward:

• Announce a public NGDP level path
• Use market expectations (potentially NGDP futures) to gauge whether policy is on track
• Adjust policy systematically when expectations deviate from the target path
• No need to estimate unobservable variables like r* or the output gap in real-time

This framework would also provide crucial resistance to fiscal dominance.

With an explicit nominal target, the Fed would have clear justification for tightening when fiscal policy threatens to push nominal spending above the target path. It transforms monetary-fiscal coordination from a political negotiation into a rule-based interaction.

The Risk of Policy Drift

Yesterday’s decision reflects a deeper problem: monetary policy lacks a systematic rule.

Miran’s isolated dissent for 50bp is particularly telling. Here’s Trump’s newest appointee to the FOMC – who co-authored a paper last year calling Fed independence an outdated “shibboleth” and advocating that Fed governors “serve at the will of the U.S. president” standing alone in pushing for even more aggressive easing.

That even the traditional doves Waller and Bowman didn’t join him suggests they recognise some limits to accommodation, but Miran apparently does not.

When each meeting becomes a negotiation rather than a rule-based decision, and when political appointees push for ever-easier policy regardless of economic conditions, the door opens wide to political influence and short-term thinking.

The Fed successfully delivered nominal stability from 2010 to 2019, even without explicitly targeting NGDP. That framework whatever we call it worked. It kept nominal growth stable, delivered on-target inflation, and avoided both deflation and overheating.

Since 2020, that implicit framework has been abandoned. We’ve moved from rule-like behaviour to increasingly discretionary decisions.

The result is persistent above-target inflation, an elevated price level, and markets expecting accommodation regardless of nominal conditions.

Learning from Past Mistakes

My evolving views on this crisis offer a lesson in the importance of nominal anchors. In 2020, I correctly identified this as a supply shock and predicted a rapid labour market recovery. By 2021, I warned about surging inflation when the Fed maintained emergency policies too long. Both predictions stemmed from the same insight: without a clear nominal anchor, policy errors compound.

The Fed had a framework that worked whether they admitted it or not from 2010 to 2019. They delivered stable 4% NGDP growth that translated into on-target inflation.

That framework didn’t require perfect foresight about r* or NAIRU. It’s just a commitment to stable nominal spending growth.

Conclusion: More Than a Missing Anchor

The Fed’s rate cut yesterday reveals multiple layers of institutional failure.

The de facto NGDP stability of the 2010s has given way to discretionary policy that validates whatever nominal path emerges from fiscal and political pressures.

The US is facing not just above-target inflation and an elevated price level, but potentially epochal challenges: fiscal dominance overtaking monetary independence, and the gradual erosion of dollar hegemony. These aren’t distant risks. They are unfolding now, hidden in plain sight behind market complacency.

The solution remains straightforward: commit to a nominal level target and stick to it. But yesterday’s cut suggests the Fed lacks either the understanding or the courage to do so. The anchor isn’t just drifting. It may already be lost. And with it, potentially, goes American monetary exceptionalism.

Looking back at my predictions from 2020 and 2021, the lesson is clear: get the nominal anchor right, and the real economy largely takes care of itself. Get it wrong, and you don’t just get inflation or recession. You risk the entire monetary architecture that has underpinned American prosperity for generations.

The coming months will be critical. If the Fed continues down the path markets expect another 100-125bp of cuts by this time next year – without addressing the nominal overshoot, we’ll know the answer: there is no anchor, only drift.

And a final warning: Once the markets realise that the nominal anchor is broken then US Treasury bond yields might explode.

Many economists and market observers have expressed surprise at the apparent absence of inflationary effects from President Trump’s economic policies.

I find this a bit puzzling, as I believe the inflationary impact is already clearly visible if one examines the data properly.

In this post, I will demonstrate why I’m convinced we’re seeing the beginning of a rather significant inflationary episode in the US economy.

After Donald Trump’s return to office, three major policy changes have occurred that I believe are significantly impacting US inflation dynamics. First, fiscal policy has been substantially eased through the “Big Beautiful Bill.” This is you might say be some unpleasant monetarist arithmetics.

Second, tariff rates have increased dramatically to nearly 20% on average for all American imports.

Third, the Trump administration has placed extraordinary pressure on the Federal Reserve to ease monetary policy. I have earlier warned to watch for a credibility (or lacks of) related spike in money-velocity.

The reason many observers haven’t noticed these inflationary effects in headline figures is primarily due to sticky prices, base effects and transitory effect of prices declines in some sectors of the economy. But as I’ll show, a more careful analysis reveals the troubling trend.

My Methodological Approach: Looking Beyond Surface-Level Data

To properly understand what’s happening with US inflation, I’ve examined three different price indices – the Consumer Price Index (CPI), the Personal Consumption Expenditures (PCE) deflator, and the Producer Price Index (PPI).

For each index, I’ve analyzed both the headline figures and the core measures that exclude food and energy prices, giving me six distinct metrics to work with.

I then calculated the median of these six indices and indexed this composite measure to 100 as of April 2025, represented by the blue line in my graph. I’ve also included a band representing ±1 standard deviation across the price series to capture statistical uncertainty.

I chose April 2025 as my indexation point because it coincides with President Trump’s announcement of substantial tariff increases on what he termed “Liberation Day.” Many of these tariff implementations were delayed until August, which means we have yet to see their full inflationary impact.

The Evidence: Inflation Is Already Accelerating

When I compare the actual inflation trajectory (blue line) with the pre-April trend (green line), which assumes continuation of the growth rate observed in the first four months of the year, I find that actual price increases have significantly exceeded projections.

Both these rates surpass the red line representing the Federal Reserve’s 2% inflation target.

What I find most concerning is the clear acceleration in monthly price increases. The monthly annualised growth rates since April tell the story:

• May 2025: 1.8% p.a.
• June 2025: 3.7% p.a.
• July 2025: 3.0% p.a.
• August 2025: 4.9% p.a.

These numbers reveal what headline year-on-year figures obscure – inflation is not only increasing but accelerating at a troubling pace. This is the key insight that many commentators are missing.

Recent Inflation Data Confirms My Analysis

The latest inflation data further validates my concerns. The Consumer Price Index for August 2025 increased 0.4% on a seasonally adjusted basis, after rising 0.2% in July. Over the last 12 months, the all items index increased 2.9%, up from 2.7% in July. The core CPI (excluding food and energy) rose 0.3% in August and stands at 3.1% over the last 12 months.

The PCE price index, which is the Federal Reserve’s preferred inflation gauge, shows a similar trend. The July PCE price index increased 0.2% month-over-month and 2.6% year-over-year. More concerning is the core PCE price index, which rose to 2.9% on an annual basis in July, up from 2.8% in June. This is the highest level since February 2025 and significantly above the Fed’s 2% target.

Producer prices present a more mixed picture, with the PPI for final demand edging down 0.1% in August after advancing 0.7% in July.

However, on an unadjusted basis, the index for final demand rose 2.6% for the 12 months ended in August.

More importantly, the PPI for final demand less foods, energy, and trade services rose 0.3% in August, the fourth consecutive increase, and moved up 2.8% over the year – the largest 12-month advance since March 2025.

Services and Shelter: Not Offsetting Goods Inflation

A notable aspect of the current inflation picture is that while goods prices are facing upward pressure from tariffs, services and shelter inflation aren’t declining enough to offset this increase. Services inflation, which should be largely insulated from direct tariff effects, is showing persistent strength. In August, core services excluding shelter rose 0.3%, with transportation services particularly robust – airline fares increased 5.9% in August after a 4.0% gain in July.

Meanwhile, the shelter component, which had been moderating and helping to contain overall inflation, is no longer providing as much of a disinflationary offset. The shelter index rose 0.4% in August, the largest increase since January. Given that shelter accounts for about a third of the CPI basket, this shift is significant. The lack of sufficient offsetting declines in these major components means that as goods inflation accelerates due to tariffs, overall inflation will likely continue to rise.

Reading Between the Lines: The Concerning Details

Looking at the details reveals even more concerning trends. Grocery prices recorded their largest jump since August 2022, rising 0.6% in August. Core goods prices climbed at their fastest rate in seven months, with notable increases in vehicle and apparel prices. Core services prices also continued to firm, supported by higher travel-related expenses and a pickup in shelter costs.

While some analysts focus on headline year-over-year figures that still appear relatively contained, the momentum in monthly data paints a very different picture. The trajectory of inflation is clearly upward, and the rate of change is accelerating. This becomes evident when you analyze monthly growth rates rather than annual comparisons that can mask recent trends.

The Fed’s Credibility at Risk

Despite this clear inflationary trend, the Federal Reserve is expected to reduce its policy rate by 25 basis points in September. In my view, this would be a clear signal that the Fed has yielded to political pressure, contribting to undermining its credibility and creating an additional, independent inflation risk.

It’s worth noting that the Producer Price Index data for August showed an unexpected decline of 0.1%, which may give the Fed cover to proceed with rate cuts. However, the underlying details show that this decline was largely due to a 1.7% drop in trade services margins, which could indicate that businesses are temporarily absorbing higher costs from tariffs rather than passing them on to consumers. This is likely unsustainable, and we should expect to see more pass-through of these costs in the coming months.

The Inflation Trend That Emerges When You Examine All Six Price Indices

While individual price indices can sometimes send mixed signals, my analysis of all six major price measures (headline and core versions of CPI, PCE, and PPI) shows a consistent pattern of acceleration since April 2025. This comprehensive approach reduces the noise in any single measure and reveals the underlying inflation momentum.

The pattern becomes especially clear when examining the data in sequence. Each month since April has shown an acceleration from the previous trend, with August showing the most dramatic deviation yet.

The fact that this pattern holds across multiple indices strengthens the conclusion that we’re witnessing a genuine inflation acceleration rather than statistical noise.

Beyond Tariffs: A Fundamental Shift in Expectations

I believe we’re seeing something more concerning than just the direct effects of tariffs. The data suggests we’re witnessing a fundamental shift in inflation expectations, which presents the risk of a more permanent inflationary regime beyond the one-time impact of tariff adjustments.

What’s particularly concerning is that much of the tariff impact has yet to be fully realized. Many businesses have managed to soften the impact of rising costs by relying on pre-tariff inventories and accepting slimmer profit margins, as evidenced by the decline in trade services margins in the August PPI. However, these buffers are likely to continue to fade.

The fact that we’re already seeing accelerating inflation before the full effects of the tariff increases have worked their way through the economy suggests that the problem could become much worse in the coming months.

Conclusion: US Inflation’s Upward Trajectory Is Clearer Than Many Admit

While many commentators continue to express surprise at the lack of visible inflation from Trump’s policies, I maintain that the evidence is clear for those willing to look beyond headline figures and examine the actual trajectory of monthly data. I believe my analysis indicates that US inflation is not only rising but accelerating at a concerning pace.

The coming months will likely validate this assessment as the full effects of tariff increases work their way through the economy.

More troubling is the potential for entrenched inflation expectations, which could make this inflationary episode much more persistent than many currently anticipate.

Federal Reserve policymakers should take note of these warning signs before proceeding with interest rate cuts that could further fuel inflationary pressures. The window to prevent a more serious inflation problem may be closing quickly.

Long-term British government bond yields are now at their highest level in almost 30 years.

What is even more concerning is that the UK economy is actually slowing down, which means that nominal GDP growth must now be considered significantly lower than long-term interest rates.

This is extremely critical, as it means that public debt as a percentage of GDP is now on an explosive rise, and if the UK government cannot convincingly demonstrate to financial markets that it will address the large budget deficit, currently around 5% of GDP, then expectations that the Bank of England will have to step in and run the printing press to finance the deficit will explode.

In that situation, the pound will collapse, and inflation will soar dramatically. And we are already on the way – despite the Bank of England lowering its monetary policy rate this year, long-term rates are rising – and yes, inflation is again rising sharply. We are currently at almost 4% – and there are indications that it may soon become much worse.

And the UK government is paralysed, and there is no indication that Prime Minister Keir Starmer has support within his Labour party to address the fiscal problems, while voter support for the populist Reform Party grows day by day, which is hardly encouraging if one believes there is a need for fiscal tightening and major macroeconomic reforms.

Public debt in the UK is already above 100% of GDP, and with interest rates as we see now, interest payments are consuming an increasing share of the state budget. This creates a vicious cycle where the government must borrow more to cover interest payments, which in turn increases debt and future interest payments.

And yes, it all looks very similar to the US, but unlike the dollar, the pound is not a global reserve currency.

So there is no mercy, and things could soon go very wrong in the United Kingdom.