Rates Are Exploding Higher...I've Never Seen This Before

George opens by calling the move in the two-year Treasury “unprecedented” and “bananas.” At about 11:21 a.m. Eastern, the note was up nearly 20 basis points in roughly three hours. He initially assumes the market must have received an extraordinary inflation report, but the monthly headline CPI was 0.4% against a 0.3% forecast, down from 0.6% the prior month. Core CPI was 0.3%, versus an expected 0.2% and the same 0.3% reading previously—higher than expected, but not, in his view, enough to justify the market’s reaction.

George says the 150,000 nonfarm-payroll gain was above expectations but weak for a 350-million-person economy and likely to be revised down. He rejects the idea that the data show 1970s-style runaway inflation or a wage-price spiral, arguing that energy prices are the main driver. He points to the Straits of Hormuz, Russia-Ukraine disruptions, reduced refining capacity, and historically high crack spreads. In his estimate, these supply shocks pushed annual CPI toward roughly 4%, compared with about 2.5% before the energy disruptions.

George discovers that the CPI number was only part of the explanation: Fed Governor Chris Waller had delivered hawkish comments in London. Waller said that if October inflation improved, he would lean toward a 25-basis-point increase, but if core CPI stayed around 3% or rose—as it did—“a strong policy move may be needed.” The odds of a December pause fell from 16% to zero, while the implied probability of a 50-basis-point hike rose from zero to nearly 12%. George calls the reaction mostly Fed rhetoric and says he would fade it.

George says the Fed should be looking through the windshield rather than the rear-view mirror. Oil had already fallen below $90 and then below $86, and the crack spreads that helped create the inflation surge were tumbling. Hiking 50 basis points based on old payroll and inflation data would therefore respond to conditions that may already be reversing; he compares such a mistake to the Fed’s July 2008 hike under Jean-Claude Trichet. He argues that the Fed does not mechanically control liquidity or interest rates so much as control market psychology through hawkish “jawboning.”

George focuses on diesel because it powers the trucks transporting food and other goods. He shows diesel rising from below $4 before the Middle East disruption to above $5.50 and then roughly $6.50, arguing that this alone explains much of the CPI increase and makes the limited inflation surge surprising. He says narrowing gasoline and diesel crack spreads signal easing fuel-market tightness. He speculates that refiners can shift between diesel and gasoline production, so unusually profitable diesel refining can also lift gasoline prices; falling prices in both markets are therefore a favorable forward indicator.

George says the 50-basis-point odds had already fallen by about one percentage point during the recording and predicts they could reach 3–5% by Friday. He warns that higher Treasury yields will raise mortgage rates, all else equal, and tells viewers to monitor macro conditions rather than bury their heads in the sand. He also briefly mentions major stock-market swings, a possible AI-bubble problem, Jensen Huang, and Chinese espionage-related news, then closes by directing viewers to his free newsletter and urging them to stand for freedom, liberty, and free-market capitalism.