What’s The Big Skinny? Humphrey B. Neill built an entire investment philosophy on moments exactly like this one. “When everybody thinks alike, everyone is likely to be wrong,” as he wrote in The Art of Contrary Thinking in 1954. Seventy-two years later, everybody thinks alike. And I’m taking the other side.

A done deal?!

Barron’s published this verdict before a single vote was cast for today’s Federal Reserve Meeting.

What’s more shocking is they have plenty of company…

That would mean the Fed is about to raise the price of money to fight an inflation problem that money isn’t causing.

I’m not buying it. And you shouldn’t be either.

Go read last Friday’s inflation report. Not the headline, the guts.

Core CPI, which strips out food and energy, rose just 2.4% over the past 12 months – the lowest core reading since March 2021. Shelter cooled to 3.0% from 3.2%, and food cooled to 2.7% from 3.0%.

Every single category the Fed’s rate tool actually reaches is already going the Fed’s way.

Now here’s what isn’t:

So, what exactly does a 25 basis points hike from Washington do about any of that? Not a thing!

The problem isn’t sitting in a bank account. It’s sitting in the Persian Gulf, where Saudi Arabia’s East-West pipeline is shut, Brent crude just touched a four-month high around $107, and U.S. diesel hit a record $6 a gallon.

The Fed can print money, but it can’t print a barrel of oil or reopen a pipeline.

Don’t take my word for it. Take the Fed’s own July minutes, which concede that inflation “remains elevated relative to the Committee’s two percent goal, in part reflecting supply shocks that have driven price increases in certain sectors, including energy.”

They diagnosed it correctly. But if they hike today, they’re prescribing the wrong medicine to treat what ails us.

And here’s the chart to prove it…

I recommend you use this analysis method on every CPI release from here forward.

Take each component’s year-over-year rate and multiply it by that component’s relative importance weight. What you get is that category’s actual contribution to the headline number, not its headline drama.

If we do that on last week’s inflation report, the picture inverts.

Energy is 6.3% of what Americans buy, but it’s delivering roughly 1.0 full percentage point of price hikes in the 3.4% inflation rate. That’s nearly one-third of the entire problem coming out of a sliver of the basket.

Measure it against the Fed’s 2% target and it’s starker still – of the 1.4 points of overshoot, energy accounts for about three-quarters.

Translation? Strip out the missiles and the shut pipeline, and inflation is running a hair above target with core at a five-year low.

Meanwhile, the market already did the hiking.

The 10-year Treasury yield crossed 5% on Monday for the first time since October 2023, after starting the year around 4.15%.

That’s over a full point of tightening the bond market delivered without a single FOMC vote.

The Fed’s own minutes acknowledge “financial conditions had tightened over the intermeeting period.” Some officials counter that conditions still aren’t restrictive enough.

Tell that to a homebuyer staring at a 7% mortgage!

Humphrey B. Neill wrote the rule for this exact setup back in 1954: 

I’m not just quoting him. I put $5,000 behind it in a wager with a random trader that the Fed won’t hike today.

Proceeds to go the winner’s charity of choice. But you can get even better terms than I did.

Polymarket’s currently paying about 9-to–1 on “no change” to Fed rates in September. In other words, eleven cents buys a dollar.

That’s not a market pricing uncertainty. It’s a market that stopped considering the alternative, which is exactly when Neill’s rule starts paying rent.

Don’t take my word for it. Take Governor Christopher Waller’s.

On September 3, a sitting Fed governor said the quiet part out loud: “I don’t see elevated energy prices and tariffs now as a significant source of ongoing inflation pressure.” He added that “underlying inflation is doing better than the core numbers suggest” and that he was willing to support a hold.

Who flips to outvote him? July’s decision was 9–3 to hold, the three dissenters were already hawks, and four more members have to switch sides by 2pm Wednesday. We’ll see what happens momentarily.

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