Consumer prices accelerated in August. Gasoline jumped 3.9%. Odds of a Federal Reserve rate hike surged toward 90%. And the S&P 500 closed up 0.9% anyway. That looks like a contradiction until you look at the 1-point gap between headline and core inflation — a gap that explains why markets treated this print as a supply shock rather than a demand problem. Here's the full mechanism, the three ways Wednesday's Fed decision can break, and the specific signals that would prove this read wrong.

Brent crude pushed past $100 a barrel Wednesday for the first time since July 24 — and S&P 500 futures barely moved. That gap isn't complacency. With the 10-year Treasury near 4.80% and futures pricing roughly 60% odds the Fed raises rates next week, the oil shock has already been absorbed through the rates channel instead of the equity channel. Thursday's PPI print is the sharper test of whether it leaks into everything else.

Nvidia gained 8.7% on AI guidance Thursday, then fell 4.6% Friday on news that had nothing to do with Nvidia. What changed was the price of money. Fed Chair Kevin Warsh put the 2% target back at the center of the market, September rate hike odds jumped from roughly 35% to 57%, the 2-year Treasury yield rose 13 basis points to a one-month high, and gold dropped 3%. Here's the full causal chain, the falsification test for whether it holds, and the three scenarios for the August jobs report.