Core CPI came in at 0.3% month over month, and by the time Bank of America's weekly rates call started the market was pricing roughly a 90% chance of a Fed hike next week.
The obvious reading of a hot print is that inflation is accelerating. BofA's economists say it is not — the beat came from wireless plans and airfares, and the case for hiking is that underlying inflation has stopped falling rather than started rising.
"It's just that we're stuck and we're stuck underlying inflation is stuck around 2.5%"
This is the recording of BofA Global Research's weekly client conference call. Mark Cabana co-heads global rate strategy and runs the call; Aditya Bhave heads US economics and the team has been publicly calling for 75 basis points of hikes this year, against a Fed that had not yet moved.
The full episode is covered here so you can skip it. 29 minutes of audio, 14 minutes of reading.
Here are the 11 calls that matter.
👤 Speakers: Aditya Bhave, Head of US Economics at BofA Securities; Stephen Juneau, the team's inflation economist; Meghan Swiber, who covers the TIPS market on the rate strategy team; Ralph Axel, rates strategist
🎙️ Host: Mark Cabana, Co-Head of Global Rate Strategy at BofA Securities
📰 Published: 14 September 2026 on YouTube (Bank of America)
🔴 YouTube | 🔗 Episode page | ⏱️ 29 min | ✅ Time saved: 15 min
Key Takeaways
The CPI beat carries almost no signal, because the two drivers are both one-offs
A change in AT&T pricing lifted wireless services 5.9%; airfares track jet fuel and the Iran war
What matters from the print is core PCE, which jumped from 26 to 30 basis points tracking
Bhave's advice to the Fed is to hike faster than the market expects and stop sooner
The market has almost 90 basis points priced; BofA's call is 75
The argument for hiking is not that inflation is rising — it is that it is stuck around 2.5% with nothing to push it back to 2%
Cabana's framework for how far the move can run ends at the peak of the last cycle, and the Taylor rule says 5.2% today
Treasury's arrival as a buyer changed the tail risk on 30-year spreads for Ralph Axel, but he says buybacks are too small to fix the problem
What he wants is less long-end issuance at the November refunding
Over 80% of BofA's surveyed clients say Chair Warsh's communications are ineffective
1. The CPI Beat
Cabana handed the CPI question to Aditya Bhave, who immediately handed it to Stephen Juneau as the team's inflation specialist.
Core CPI came in above expectations at 0.3% month over month, against BofA's own estimate of 22 basis points
The miss was in core services, and the components behind it are the volatile ones. Wireless services rose around 5.9% and contributed roughly 10 basis points to core CPI; airfares and lodging away from home added another eight basis points between them
Juneau attributed the wireless jump to a specific corporate decision, a change in AT&T pricing plus the retirement of some unlimited plans, with the new pricing taking effect that month. "You're unlikely to see that wireless phone services jump again next month."
Airfares are an energy story, not an inflation story. He tied the increase to the uptick in jet fuel prices with the Iran war, said it may not go away soon, but noted that at some point airfares reach a top
His conclusion was to discount the headline. "I don't know if I would take a lot away from the core CPI beat" and revise the inflation outlook, given what was driving it
2. What It Does to PCE
The number that matters is core PCE, and it moved. After PPI the team had core PCE tracking at 26 basis points; after the CPI report they were at 30
There is more uncertainty than usual around that estimate, because it incorporates assumptions about methodology changes to computer software and accessories, legal services, and portfolio management investment advice, which land with the August report at the end of the month
The methodology changes are not helping the print. Juneau said portfolio management investment advice came in through PPI a bit weaker than the team estimated under the new methodology, and the same for computer software and accessories
The absence of a familiar pattern is itself the finding. "So you're not necessarily seeing that residual seasonality that you've seen in prior years."
3. The Fed Hikes Next Week
Bhave started from what is already priced. "Well, the market certainly thinks they're going to hike." Over an 85% probability of a rate hike, and in his view "And as far as I remember, it would be pretty much without precedent for the Fed to not follow through."
BofA's call is 75 basis points of hikes this year and the team is comfortable with it. Bhave said they think the Fed would be well served to keep going after September
October is underpriced on his read. The market attributes less than 40% to October and one full hike by the end of the year, and he would by no means rule out an October move even that close to the elections
His case for a faster, shorter cycle is about credibility. The market has almost 90 basis points of hikes priced for terminal, more than BofA forecasts, and his argument is "we're going to go fast we're going to end up doing less and we're actually going to deliver more credibility that way"
He does not expect a dovish hike. His base case is that Chair Warsh sounds somewhat hawkish and resolute about continuing, and he added that delivering the hike is itself a way to put downward pressure on the long end — while noting oil was also down that day, so the long-end rally was not only a Fed story
The signaling risk he named is the European Central Bank's. Emphasize the pace rather than the size, because what nobody wants is markets pricing in another 100 basis points the way they did after the ECB the previous day
4. Stuck at 2.5%
Bhave was explicit that his argument is not acceleration. He agreed with Juneau that the latest data does not show inflation speeding up. "It's just that we're stuck and we're stuck underlying inflation is stuck around 2.5%"
That 2.5% is after the good news, not before it. It assumes the Iran shock rolls off, the revisions land, and the tariffs roll off — so if a lot of things go well, core PCE sits there anyway
The gap he identifies is a missing policy impulse. Nothing in current policy takes inflation from 2.5% back to 2%, and with the risks around the labor market dissipated and the outlook balanced, he sees this as the Fed's opportunity to supply it
The sequencing matters to him more than the destination. Get to 2%, stay there, and only then think about cutting back toward current policy levels or about bigger questions like changing the inflation mandate. "But first you got to get back to 2%."
5. What the SEP Might Show
Cabana asked what would count as a surprise in next week's Summary of Economic Projections.
Bhave expects the median to lag the call. "So, I'd be quite surprised if the SEP showed three hikes for the year. I would expect that it just shows two."
He named the officials he expects at three — Logan, Hammack and Kashkari — as feeling vindicated and likely to favor going every meeting for the rest of the year
A cut penciled in for next year would not surprise him. Some participants may add tightening, expect slightly lower growth and slightly lower inflation, and open the door to a cut; whether they account for the revisions is an open question, and if they do the inflation path could look materially lower for reasons that are not policy
Longer-run views he expects to be unchanged, because they are inertial, and he expects only a light touch on the statement — language linking inflation persistence to the need to hike, and a question over whether the productivity language survives given weak recent productivity
The press conference is where the risk sits. If Warsh tries to deliver a dovish hike and the long end reads it as symbolic and starts selling off again, that is the worst outcome. "You have to be all in."
The awkward question Bhave expects is why not in July. The truthful answer, on his reading, is that the long-end sell-off increased the Fed's urgency — and "He's not going to say I'm worried about the 10 year yield and 30-year yield." What Warsh can point to instead is a couple more months of sticky inflation data, or pass-through from oil, having previously called oil a one-off
6. The Long End Likes Orthodoxy
Meghan Swiber described the immediate reaction as textbook. "So what we saw immediately following the print was as we would expect very notable twist flattening of the yield curve with front-end rates up and longer term rates down." She put the market at roughly 90% for a 25 basis point hike next week
Her read is that the price action is a message to the Fed. Delivering on inflation credibility is what brings longer-term borrowing costs down — costs that rose notably after a July FOMC meeting at which, in her account, Warsh sounded less credible and less focused on the Fed missing its 2% core PCE target
Under the hood it is real yields doing the work. Breakevens were lower across the curve, mostly the beta to oil on the day, with the decline in inflation compensation more pronounced at the front end, leaving real yields to flatten
The trade she still likes is a curve one. "From a curve perspective, we do still like being in forward starting real yield flatteners." The position follows from the team's out-of-consensus call that the Fed would hike in September and deliver 75 basis points in total
Cabana's summary of the day was four words. The move told him "the long end likes orthodoxy" — the print forced the Fed's hand, the market got more confident about September, and the long end read that as a return to orthodoxy
7. How Far Can This Go
Cabana framed the question as a sequence of stops on the Fed path. The first was pricing out last year's labor market insurance cuts, which has clearly happened
The next stop is the peak of the last hiking cycle, which he put in the low fives — about 50 to 60 basis points away from where the market sat
His second frame is a rule, not a precedent. "The Taylor rule also tells you that the funds rate using spot data should be 5.2% right now." He was explicit that this is standard Taylor using spot data
What he thinks will govern the rest of the move is oil, the response of financial conditions — equities, he noted, seem not to care very much — and how it feeds through to broader economic data
8. Drivers of the Rates Move
Cabana laid out the two-week move from 24 August: the 2-year up over 40 basis points, the 10-year up around 30, the 30-year up around 15, all nominal, and asked Swiber what was behind it.
Fed expectations are the dominant driver. What the market prices the Fed to reach in two years lines up closely with the 10-year rate
Oil is the second. "Oil goes up, we see inflation comp move up." That beta tends to be higher at the front end of the curve
Policy uncertainty is the third, and it is about Warsh's response function. The back and forth between the June and July FOMC meetings and then the Jackson Hole comments left the market unsure what that function is
The fourth is uncertainty coming from Treasury itself, specifically the surprise buyback announcement of larger sizes at the long end, and the client debate over whether it amounts to an interventionist policy or the start of something larger
Her conditional forecast: the more the back end comes under pressure and buybacks prove unsuccessful, the likelier Treasury has to take a larger step at the November refunding and adjust issuance at the long end
The fifth is a slow change in who owns Treasuries. More investment funds, more sensitivity to the spreads available in investment grade, and a market contending with heavier IG supply — visible, she said, in the auction data, and many of those funds run aggregate mandates that put Treasuries in competition with other asset classes
Her bias from here is lower rates, especially in the belly. "We would say that overall the bias is likely lower, especially at the belly of the curve with the market pricing, the degree of hikes that it is right now." For the Fed to exceed 75 basis points and approach Cabana's 5.2%, she said you would need inflation persistence through the hiking cycle and no feedback loop back into financial conditions
9. Treasury as a Police Force
Cabana put two underwhelming signals to Ralph Axel: a buyback calendar less forceful on future sizes than the market expected, and Treasury declining to buy the maximum the day before.
Cabana's own concern was price sensitivity. "It risks Treasury trying to do buybacks on the cheap."
Axel's framing is that Treasury is now policing the market. He called its introduction as what he might term a police force a very big deal for tail risk on 30-year spreads
He has always liked spreads and has always found the front end easier to own. You pay less on the swap margin and get a very high return on equity there
He was careful not to claim the front end is safe. Two-year spreads blew up on Liberation Day, and in his words there is really no place that's safe
The 30-year is the position he could never hold comfortably. A very high carry trade, waiting and hoping nothing happens, always fearing the blow-up and being wiped out of it — that is what deterred him
Treasury's arrival changed the size of that fear, not the trade. "Now that the Treasury has entered, I no longer fear with the same intensity that tail risk."
10. The Real Fix Is Supply
Cabana's read is that Treasury is learning in public. He assumed it was surprised by the negative long-end reaction to its schedule release and first buyback results, and expects it to watch and adapt given how differently it is using buybacks now
Axel does not think buybacks are the lever. The issue is auction size: "They're pumping in duration risk into a market that simply doesn't want it."
He graded the week's buyback as disappointing rather than failed. Spreads have widened, the 5s30s spread curve has steepened, and 5s30s Treasury has flattened versus SOFR — not an abject failure, but in his words way too small and in need of being beefed up
His actual ask is less long-end issuance. "The real kahuna is in reducing the long-end supply and please the sooner the better." The team has written that the buyback tool is a very limited one
Cabana's close on the topic was to point at the calendar — the November refunding, where both of them will be watching for the signal
11. What the Survey Said
Cabana finished with three charts from BofA's FX and rate sentiment survey, published that morning.
On what would realistically stabilize global long-end rates, 70% said fiscal consolidation, with around 20% choosing a faster pace of central bank hikes
Cabana's own reaction was disbelief at the first number. "My reaction to that is wow I'm surprised that so many people think it's realistic that we can get fiscal consolidation." He noted it is clearly where market sentiment sits
On Chair Warsh, over 80% said his communications are ineffective at delivering desired monetary policy outcomes. "So, that was just a very striking response to me."
On what has driven the global long-end move since the end of June, with the US 10-year up almost 50 basis points, the responses came back roughly evenly distributed at about 30% each across the factors offered, among them hyperscaler supply and improved growth
He read the flatness of that distribution as the finding. The market has not settled on an explanation for a very big move, which is why he thinks the survey is worth reading where a quantitative answer is hard to get from prices
BofA's collective position is that a hot CPI print with weak signal value is still the right trigger for a hike, because the problem the Fed has to solve is an inflation rate that has stopped moving rather than one that is running away.
Bonus Insights
Bhave opened by deferring to his own colleague, telling the call that Juneau would be able to say a lot more interesting things about CPI than he would
Swiber credited the September hike call as the team's, describing it as a great out-of-consensus call, and said the real yield flattener position follows directly from it
Cabana flagged the shape of the survey answers, not just their level — the near-even split across drivers of the long-end move is the unusual result, because a market that agreed on the cause would produce a lopsided chart
The Iran war reached the CPI report through jet fuel, which is how a geopolitical shock turned up inside a core services component
Cabana signed off by calling the next week fun and exciting, on the grounds that the last several have been
Products, Companies & Tools Mentioned
AT&T (A change in its pricing, plus the retirement of some unlimited plans, is what Juneau says drove the 5.9% rise in wireless services — and why he expects no repeat next month)
The US Department of the Treasury (Its surprise move to larger long-end buybacks is the policy both Swiber and Axel spend the back half of the call assessing; Axel wants less issuance instead)
The European Central Bank (Bhave's cautionary example of a communication failure — markets priced in another 100 basis points the day before)
Books & Resources Mentioned
BofA Global Research's FX and rate sentiment survey (Released the morning of the call; Cabana walked through three charts from it and told listeners to read it)
BofA's rates weekly (Where Swiber says the team has written up the oil beta and the limits of the buyback tool)
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