Yesterday, the April CPI report came out. And it did not come in the way markets were expecting at all.

Inflation reached the highest level we’ve seen since May 2023. That means the highest reading in three full years, at the exact same time markets continue breaking records and pushing to new highs.

THE NUMBER THAT FROZE WALL STREET

Let’s start with the numbers. CPI came in at +0.6% month-over-month and +3.8% year-over-year, while analysts were expecting 3.7%. Small difference, you might say. True. But in moves like these, even small deviations genuinely matter.

Core CPI, meaning inflation excluding food and energy, came in at 2.8% annually and +0.4% monthly. And that tells us something very specific. The biggest pressure is not coming from the core. It’s coming from non-core categories. Mainly energy.

“So what happened with energy?” you’re probably wondering. Very simply, oil moved back above $100 as concerns around Iran started heating up again. And as you know, when oil rises, everything rises.

At the same time, there’s another factor in the background. Trump’s tariffs. Even though the Supreme Court struck down most of them in February, the economy is still dealing with the hangover from that whole tariff theater.

THE FED IS IN A WEAK POSITION

Now let’s get to the most interesting part of the story. What has the Fed been doing this whole time? Nothing. It’s sitting back and watching.

Interest rates remain frozen at 3.50%-3.75%. And pay attention to this. According to market futures, traders have now removed every probability of a rate cut until April of… 2031. Yes. 2031. Not 2026, not 2027. Five years from now.

And that’s not all. The yield curve is now showing a higher probability of rate hikes rather than rate cuts. The exact opposite of what everyone was expecting just a few months ago.

“So how did the Fed end up here?” you’re probably asking. Very simply, when inflation is above 3% and your target is 2%, you cannot cut rates.

In fact, the latest FOMC meeting had the highest number of dissents in 34 years. Since 1992. And that tells us something important: even the Fed itself is divided.

And this is where the leadership change comes in. Powell is leaving. Kevin Warsh is coming in. Many expected this transition to bring a more dovish stance. But Paul Tudor Jones, one of the most respected investors on Wall Street, said something very specific a few days ago:

“There is absolutely no chance Warsh manages to cut rates.”

With inflation this high, it simply cannot happen. No matter who is in charge.