How do we calculate today’s CPI report against expectations set by Joe Biden? Before we get to either Rick Santelli or Jason Furman, let’s first check in with our pal Jim Geraghty. Remember the White House’s end-zone dance over “zero percent inflation” last month? Jim certainly does:

This administration has many bad habits, but one of them is spiking the football in victory at any glimpse of good news. pic.twitter.com/dUCA7jjDMe

— Jim Geraghty (@jimgeraghty) September 13, 2022

Having set that expectation — and then passing and signing a bill titled the “Inflation Reduction Act” — Biden and Democrats placed a big bet on the next two cycles of inflation reporting before November’s midterms. Today’s CPI report makes clear what a longshot that was and how badly their bet went. CNBC’s Rick Santelli notes that all of the measures were “hotter than expected,” and that he knows why:

#BREAKING: August inflation report clocks in 8.3% after it was expected to have been a tenth lower. Stripping out food and energy, inflation hits 6.3% compared to last year compared to the predicted 5.9%.

Listen to Rick Santelli's analysis afterwards. He was NOT having it. pic.twitter.com/oU2ACt4u37

— Curtis Houck (@CurtisHouck) September 13, 2022

SANTELLI: What bothers me in regard to inflation is everybody here on this panel agreed, months ago, that one of the reasons that inflation’s high was all of the government spending. And after we agreed on that, what did the government do? They spent more! Student loans, welfare in terms of the CHIPS Act, seems like nothing is sinking in. These numbers aren’t better than expected, and maybe they shouldn’t be – and maybe ultimately, they’re going to start to go back up.

Santelli’s not the only one barking at the White House over expectations. Barack Obama’s chair of the Council of Economic Advisers Jason Furman called the new CPI report “not pretty,” and warned that “broad-based relief [is] not coming”:

CPI report not pretty. Headline fine (0.1% CPI for Aug or a 1.4% annual rate in that month, with prices up 8.3% over the last year).

Problem is excluding volatile food and energy and was ugly (0.6% for Aug or a 7.0% annual rate).

Broad-based relief not coming. pic.twitter.com/WVODxYmrYm

— Jason Furman (@jasonfurman) September 13, 2022

In sum, Core CPI is running ~4.5pp above the Fed's target (note the Fed actually targets another measure). Some is probably quirks & transitory, but hard to escape some concept of underlying inflation running about 2.5pp above the Fed's target.

Soft landing odds down a little.

— Jason Furman (@jasonfurman) September 13, 2022

The soft landing odds have been falling all year as fiscal discipline has been left only to the Fed’s monetary policy. Now we know why Federal Reserve chair Jerome Powell went out of his way late last month to declare war on inflation. At the time, I called it a vote of no confidence in Biden’s policies, and especially the so-called “Inflation Reduction Act”:

That’s a big vote of no-confidence in Biden’s new Inflation Reduction Act, and for good reason — it doesn’t reduce inflation at all. Thanks to Biden’s decision to toss $500 billion or more at student-loan forgiveness, it doesn’t reduce the deficit either, but all of that government spending will worsen inflation, and Powell knows it. He has no choice but to use monetary policy to fight inflation since Biden and the Democrats in Congress refuse to fight it with fiscal and tax policies that would either limit consumption or — better yet — spike production.

Just how bad will it get? After today’s report, traders are now betting that the Fed will hike its interest rate a full percentage point rather than the 0.75% level tried the last two meetings:

Derivatives markets are now showing the possibility of a full percentage-point rate increase at the Federal Reserve’s next meeting on Sept. 21, following Tuesday morning’s hotter-than-expected inflation print.

Following today’s hotter-than-expected inflation print, expectations for a 0.50-point increase in September quickly dropped to zero from 14% earlier Tuesday morning. The odds of a 0.75 percentage-point increase dropped to 80% from 86% while the chances of a full 1 percentage point rise jumped to 20% from negligible (per CME Group’s FedWatch Tool).

The terminal rate, or the point at which the benchmark interest rate peaks, is now expected to reach over 4.2% in April from just under 4% prior.

It may have to go higher than that. Generally speaking, interest rates and the PCE index inflation rate would have to meet before inflation cools. Right now the Fed’s benchmark is between 2.25-2.5%, and the last PCE index rate of inflation was 6.3%. Unless the Fed gets that to bend down fast, interest rates will have to rise rapidly and/or over a long period to get demand down and cool the economy. At this rate, a so-called “soft landing” looks more like fantasy than reality, especially while Biden and his team keep dreaming up cash out of thin air.

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