Inflation Came In Red Hot — So Why Did Bonds Rally? The Signal Everyone Missed

September PPI rose 1.3% month over month, missing forecasts by 0.7 percentage point, while core wholesale prices rose 0.7%—more than twice expectations and the fastest pace in four years. Bilyeu attributes part of the surprise to energy costs, including a 20% rise in wholesale gasoline and a 10.8% rise in energy prices, but notes that hotter core inflation shows the pressure extended beyond food and energy.

Bilyeu argues that rate hikes may be inappropriate when inflation reflects supply disruptions that the Fed cannot control, particularly if the economy is weakening. He says rate hikes cannot reopen the Strait of Hormuz, which he attributes with 80% of the observed inflation increase.

Bilyeu links rising Treasury yields and doubts about the AI narrative to chip-stock weakness, while noting that the 10-year yield had reached 5.19% before later falling roughly nine to 10 basis points as investors moved into Treasuries. He says the selloff in tech stocks alongside the Treasury rally shows portfolio balancing is still working, even as CoreWeave debt repricing and competing market flows point to reassessment and volatility around AI financing.

Bilyeu warns that if investors stop viewing U.S. Treasuries as a safe haven, the government could have to buy back its debt, which he says would be highly inflationary; he presents this as a conditional risk, not an event that has occurred. He also argues that heavy gold buying can signal deeper distress, as investors seek wealth preservation when they distrust alternatives.

Bilyeu argues that AI could become broadly deflationary as intelligence is embedded in products and services, but says the scale and timing depend on adoption and deployment. He also says lower AI and compute costs could increase usage enough to create jobs under Jevons’s paradox, while predicting that businesses will use AI to make products and services cheaper, better, and faster.