About a half a year has passed since we last updated you with our take on the bond market. Since then, the Federal Reserve has tilted even more hawkishly with 75bp rate increases in their attempt to combat inflation. Unfortunately, they have not made much headway, as August CPI data registered a gain of 8.3% year-over-year, with Ex Food and Energy CPI at 6.3%, both ahead of economists’ and market expectations. These high numbers are not what Fed Governors or the markets were hoping to see as the immediate reaction from both bonds and stocks was a quick sell-off. Making matters even more difficult is the reality that the “sticky” components of inflation, such as rent, posted its largest monthly increase in this cycle since 1986. Inflation on services also touched a new high, as medical care and transportation services helped drive gains. If not for drops in gasoline and other commodities, the latest inflation report would have been even hotter. We believe another 75bps rate increase is all but certain when the Fed meets later in September. While consensus is growing for an additional 75bps in November and a higher terminal rate in our intermediate future, the question becomes whether or not this scenario is fully accounted for in current prices.