Warsh Faces Intensifying Pressure to Raise Rates After Hot CPI
Underlying inflation rose more than expected in August, as the core consumer price index, which excludes food and energy costs, increased 0.3% from a month earlier, according to Bureau of Labor Statistics data out Friday. The report bolsters the argument already embraced by several policymakers that the Fed must act to curb price pressures after more than five years of elevated inflation.
The probability of a hike at the Fed’s Sept. 15-16 gathering, based on federal funds futures, jumped to above 85%, up from about 70% on Thursday. They also expected a second rate hike by December. (…)
“Now the question is not whether they hike, it’s how much they need to hike to contain this inflation.” (…)
The University of Michigan’s latest survey showed one-year inflation expectations jumped in early September to 4.6% from 4% a month earlier. And for the first time since 2023, a majority of consumers expect interest rates to rise over the next 12 months. (…)
Some CPI stats:
- Headline rose 0.4% MoM and is flat in the last 3 months. +3.4% YoY.
- Core rose 0.3% MoM after 0% in June and +0.2% in July. +2.4% YoY but 3.0% a.r. in the last 2 months.
- Core goods rose 0.1% MoM, pretty flat YtD. +0.7% YoY
- Core services rose 0.3% MoM after 0% in June and +0.2% in July. +3.0% YoY.
Saudi Arabia Shuts Down Pipeline That Was a Crucial Hormuz Bypass The kingdom said drones fired from Iraq damaged the East-West pipeline, which can carry up to 7 million barrels of oil a day
(…) The crucial East-West pipeline can carry up to 7 million barrels of crude a day 750 miles from Saudi Arabia’s oil-producing heartland on the Persian Gulf to the port of Yanbu on the Red Sea. From there, the Saudis had been able to ship millions of barrels of oil to customers around the world.
The Saudi Foreign Ministry said several drones caused injuries and damage that the kingdom was repairing. It said the drones were fired from Iraq, where authorities have struggled to control Iran-backed militias that have repeatedly targeted Saudi infrastructure. Saudi Arabia, with the U.S., carried out rare airstrikes earlier this year against Iraqi militias, but this time, the Foreign Ministry said it would refrain from retaliating at Baghdad’s request. (…)
Attacks earlier this year damaged a pumping station and reduced the line’s capacity by about 700,000 barrels a day. The country restored the pipeline to its full capacity within days. Thursday’s attacks targeted several pumping stations, the Saudi official said. (…)
The kingdom’s crude supply fell 2.3 million barrels a day to 6 million barrels a day in August, the Paris-based IEA said in a report Friday. Saudi Arabia produced around 9.4 million barrels a day on average last year.
The disruptions are adding pressure to the Saudi economy and complicating Crown Prince Mohammed bin Salman’s Vision 2030 plans, which rely on sustained state spending to diversify the economy and finance large-scale infrastructure projects.
Saudi gross domestic product contracted 4.7% from a year earlier in the second quarter, as the disruption to oil exports hammered activity. The kingdom’s budget deficit, at the equivalent of $42.7 billion in the first half, is already running close to the shortfall it had budgeted for the entire year.
The supply crunch is live:
- The IEA last week: ““With a refining system stretched to capacity, there appear to be limited options available to avert a further tightening of supplies and higher prices in the coming months.”
- “Costco in now rationing motor oil” as its Kirkland-Signature full-synthetic is now selling for $58, up 93% pre-war. Some stores are imposing a two-per-customer, per-week limit. (The Drive)
- “(…) one measure keeps bubbling up as a far-fetched, yet not impossible, idea: banning American exports of key refined products including diesel and/or gasoline.
So, Trump cut oil supply to the world and would now cut US exports…
Trump Says Open to China Building Cars in US as Xi Visit Looms
President Donald Trump suggested he might be willing to allow a Chinese car company to build electric vehicles in the US if it did so with American workers, while pledging to maintain the effective US ban on imported vehicles from China. (…)
“Now, if China wanted to come in, and open a plant to build their cars here, I’d be okay with it — Japan does it — but they hire our people,” Trump said. “The big thing is they hire our people, they use our people.” (…)
Electric vehicles?
Trump Ally Says US Underestimates China Tech Sector After Visits
US Senator Steve Daines said the US may be misjudging the sophistication of China’s technology sector.
The Montana Republican — an ally of President Donald Trump — traveled to the Chinese cities Hangzhou and Guangzhou on what he described as a “fact finding mission,” as well as to prepare for the summit between Trump and Chinese President Xi Jinping later this month.
“I think we’re underestimating both the quality and the scale of the tech innovation ecosystem in China,” Daines said in a phone interview with Bloomberg on Friday.
“It’s important that that we in the United States have a better awareness and understanding, because we’re going to have to and are competing with some of the very best and brightest in the world,” he said. (…)
Daines worked as an intermediary during the last trade war between the two nations during the first Trump administration, holding high-level meetings in 2019 with officials in Beijing, including with Xi’s top negotiator at the time, Liu He.
He’s also a rare US politician with experience in China, having worked as an executive for Procter & Gamble Co. in China and Hong Kong. (…)
Evidence of increasing AI capabilities: GPT-6 Astra and the ARC Prize Foundation
The Millennium Math Prize allegedly solved by OpenAI got a lot of press this week, but capabilities of OpenAI Astra 6 are just as interesting.
Francois Chollet, a French computer scientist who worked at Google, has been a notorious AI skeptic. The Atlantic in April 2025 cited him in an article titled “The Man Out To Prove How Dumb AI Still Is”. In 2019, Chollet created the Abstraction and Reasoning Corpus for Artificial General Intelligence (ARC-AGI), an exam designed to show the gulf between AI model memorized answers and the fluid intelligence that people have.
The exam assesses the ability to quickly acquire skills and solve unfamiliar problems from first principles, rather than just memorizing enormous amounts of training data and regurgitating information. GPT-
3 scored a zero on ARC-AGI-1 (humans score 60%-70%), and OpenAI o1 scored just 3% on ARC-AGI-2.
In March 2026, Chollet and the ARC Prize Foundation released ARC-AGI-3, a harder set of problems that shifted from static to dynamic interactive video challenges. As shown below, GPT-6 Astra scored 62% with a standard harness and 99% with a Provider Adapter harness (which uses OpenAI’s context management features to preserve and reuse the model’s reasoning between interactions).
Astra figured out how to represent game mechanics as logical rules and developed its own domain-specific language shorthand to track its state and plan actions. Astra also needed fewer actions than a human baseline to execute the solutions, which is notable for an industry known for its brute force less efficient solving methods.
Following the Astra release, Chollet was asked whether he still thinks ~2030 is on track for true AGI. His answer: “Sooner, given progress is happening faster than I expected.” While Millennium Math and ARC-AGI prizes involve abstract mathematical reasoning, there are applications in biology (drug discovery), cybersecurity, chip design and defense that have obvious parallels.
