Interpretation of the U.S. July CPI and Interest Rate Cut Outlook | Moomoo Research

Core Insights: The U.S. Consumer Price Index (CPI) for July continued to decline, slightly below market expectations, but the rebound in core service items revealed the resilience of inflation. This phenomenon not only indicates the vitality of the economy but also suggests that the shadow of recession has not completely dissipated. The market's expectation for the Federal Reserve's interest rate cut in September is almost a foregone conclusion, but the disagreement on the magnitude of the rate cut, whether 50 basis points or 25 basis points, remains unresolved. The fundamental reason behind this is that the market's concern about economic recession has not been completely dispelled.

Data Analysis: The U.S. CPI in July rose by 2.9% year-on-year, a figure that is not only below the expected 3.0% but also the lowest in the past 40 months. The core CPI increased by 3.2% year-on-year, in line with expectations, down from the previous value of 3.3%, also setting a new record for the past 39 months. Food prices remained stable, while the decline in core commodity prices contrasted sharply with the rise in energy and core service prices, especially the slight increase in housing prices on a month-over-month basis, all pointing to the strong momentum of inflation and the steady pace of the economy.

Future Forecast: According to our model predictions, the year-on-year growth rates of U.S. CPI and core CPI in August will reach around 2.5% and 3.1%, respectively. Looking ahead to 2024, the average year-on-year growth rates of CPI for each quarter are expected to show a gradual downward trend, while the core CPI shows a relatively stable growth trend. This suggests that as time goes on, the pace of inflation decline may slow down.

Market Reaction: After the data was released, the U.S. stock market welcomed an increase, while gold prices fell. The expectation of the Federal Reserve's interest rate cut also slightly cooled, with the probability of a 50 basis point cut in September falling from 60% to 40%. Despite this, the market still expects a 50 basis point rate cut within the year, showing a cautious optimism about the economic outlook.

Strategic Layout: The interest rate cut by the Federal Reserve in September is almost a foregone conclusion, but there is still disagreement in the market over the magnitude of the rate cut. The expectation of recession has not been completely eliminated, so the upcoming key data such as the U.S. August PMI and non-farm employment will become the focus of the market. If these data show signs of improvement, the concern about recession will be alleviated, and the expectation of a 50 basis point rate cut in September will also be reduced.