Trump leans on the Fed, and next week's CPI is the fork

Happy Sunday. The weekend's loudest story is the clash between President Trump and the Fed. He said the US will stop trading with countries it runs deficits with unless the Fed cuts rates, and the vice president and senior aides are publicly pushing against any hike.

Behind it is Friday's jobs surprise. August hiring came in far above forecasts, so markets are now debating a September hike rather than a cut. Economists say the trade threat could itself rattle the US economy, and that cutting rates under political pressure risks pushing long-term yields even higher and denting trust in the central bank. Long-term Treasury yields are already elevated on deficit worries and doubts about Fed independence.

Looking back over the week, there is a strange contrast. Yields and diesel prices sit at record or multi-year highs, yet the VIX slipped below 14, a two-year low, and credit-risk gauges are calm. The S&P 500 is just about 1% below its record. One camp thinks risk is not yet priced in; the other thinks the market is simply that sturdy.

So the thing to watch next week is the August consumer price report. Energy is expected to lift the headline to around 3.6%, and analysts say a hotter-than-expected print would all but lock in a September hike. US markets are closed Monday for Labor Day, so the week starts short.