Chair Jerome Powell threw a wrench in the works last week by actually putting the central bank on a path toward cutting interest rates.

It may be counter-intuitive, but a likely rate cut this month means long-term Treasuries are vulnerable. That's because what the central bank ultimately wants is faster inflation, which will eat into demand for long-duration assets.

St. Louis Fed President James Bullard, who showed foresight by voting for a reduction in June, summed it up by saying he would like "to make modest moves to try to re-center inflation and inflation expectations at our 2% target."

The 10- year TIPS break-even rates, the bond market's measure of inflation expectations, are starting to reverse a two-month decline. Up to about 1.77% Friday from 1.62% in mid-June, they still have a way to go to get to 2%.

The June CPI report last week also seemed to vindicate Powell's earlier assessment that some of the recent slowdown in inflation was transitory -- the core rate of 2.1% matched the highest this year.