Explosive cocktail

Make or break. Friday’s upside surprise in US jobs data piled even more pressure onto the Fed’s shoulders ahead of the weekend.

With 162,000 jobs added in August, the US labor market delighted economists (who weren’t expecting nearly that much) while weighing on markets, now forced to admit the Fed will struggle to avoid a rate hike in such a favorable economic backdrop.

So Wednesday’s inflation figures are watched more closely than ever. On paper, hotter-than-expected inflation would twist Kevin Warsh’s arm and force him to raise rates as soon as the September 16 meeting.

In practice, the Fed chair could dig in on his gamble: playing for time, waiting for the productivity gains promised by artificial intelligence to finally cool rising prices.

If the bet pays off, all is well in the best of all possible worlds, with corporate earnings living up to the hoped-for valuation multiples, inflation retreating, and low rates to clear the debt wall on good terms.

But if it fails, the house of cards could collapse in a snap.

In that disaster scenario, high inflation would force the Fed to hike rates sharply to keep the dollar from turning into Monopoly money. AI companies would then get caught in a brutal pincer, their commercial activity losing steam just as their debt costs explode.

Kiss it all goodbye.