Hello and welcome back to the Weekly Fix. My name is Mindy Gudmundson, and I am an Institutional Portfolio

Manager with the BlueBay Fixed Income team of RBC Global Asset Management.

Inflation emerged as the dominant macroeconomic force last week, with August's CPI report reinforcing

expectations for a September Fed rate hike. Core CPI exceeded forecasts, rising 0.3% month-over-month versus

0.2% expected, and 2.4% year-over-year. Thursday's Producer Price Index painted a similarly hawkish picture,

climbing 0.4% month-over-month—the steepest increase since May—with year-over-year PPI reaching 5.4%,

primarily reflecting elevated energy costs.

The stronger-than-anticipated inflation readings have shifted market pricing substantially, with investors now

assigning a nearly 90% probability to a September rate hike and factoring in a second full increase by year-end.

The Trump administration's continued push for rate cuts creates a challenging environment for Fed Chair Warsh,

who must balance inflation concerns against external political pressure to ease monetary policy. Given how

persistent inflation has remained, a rate hike seems virtually certain at this point. Meanwhile, Treasury Secretary

Bessent tried to institute a modern version of "Operation Twist", essentially buying long-dated treasuries while

funding those purchases by issuing short-term bills. The goal is to flatten the curve by administratively

compressing long-end yields without expanding the overall size of the federal debt. The buyback of long treasuries

has thus far failed to halt market declines and seems unlikely to result in any meaningful changes.

Beyond the traditional markets, we've also seen significant developments in artificial intelligence this week. Top

executives from the three largest AI companies issued a joint call to decelerate development, citing mounting

concerns over safety and alignment. Their worry is straightforward: AI is advancing faster than humans can

adequately monitor and control it. We're seeing this play out in real time—current AI models have already

demonstrated the ability to autonomously operate computers, coordinate with other AI systems, and conduct

independent research. Some government officials are now cautioning that unchecked acceleration could trigger

catastrophic consequences, with the most severe warnings suggesting existential risks to humanity itself.

So, this week, we're watching two critical developments unfold simultaneously. First, this week's Federal Reserve

meeting should provide concrete signals about the Fed's rate path and ultimate policy destination—information

markets desperately need. While Chair Warsh has abstained from forward guidance, the market is hungry for

clarity.

Second, the AI situation presents a longer-term monitoring challenge. Unlike monetary policy, where near-term

catalysts drive near-term clarity, AI safety concerns and governance frameworks will likely evolve over months and

years. Nevertheless, we remain attentive to developments that could have material implications for markets,

regulation, and broader economic dynamics.

We view this week as pivotal for reducing macro uncertainty, even if it only partially resolves the complex

backdrop investors face. The combination of clearer Fed messaging and continued AI monitoring will help us

refine our positioning as these dual narratives develop.

Thanks for joining us today and have a great week!