U.S. CPI Data Reveals Inflation Resilience: Fed Rate Cut Expectations Reach a Turning Point | Moomoo research

Following the release of the latest U.S. Consumer Price Index (CPI) report, we have observed a subtle state of balance. The year-on-year growth rate of the overall CPI in August slowed to 2.5%, below expectations, while the core CPI year-on-year growth rate remained stable at 3.2%, although its month-on-month growth accelerated slightly. Notably, residential prices have shown an upward trend for two consecutive months, indicating that despite an overall easing of inflation, underlying inflation remains somewhat resilient.

A deeper analysis of the various components reveals a slowdown in food price increases, while energy costs have declined. Core commodity prices continue to exhibit a mild deflationary trend, but core service prices show strong stability, particularly with rising housing costs. If we focus on the deeper level of "super core inflation," which excludes food, energy, and housing prices, we find that this measure has stabilized in recent months, with a slight positive change in August.

Based on the aforementioned data, we predict that the year-on-year growth rates for the CPI and core CPI in September will remain around 2.4% and 3.2%, respectively, and we expect these figures to hover around 2.4% and 3.0% by the end of the year. The inflation rate in the fourth quarter may largely remain unchanged, although there could be fluctuations in individual months; overall, the pace of inflation retreat seems relatively slow.

This data has had a direct impact on financial markets, leading to a rise in stock prices, a drop in gold prices, and a decrease in market expectations for significant Fed rate cuts. Currently, the likelihood of a 25 basis point rate cut in September appears high, while the possibility of a 50 basis point cut has significantly diminished. Regarding the monetary policy path for the coming year, we believe that market expectations for rate cuts may be overly optimistic, particularly considering that the risks of an economic recession have not fully manifested. If future data continues to indicate a robust economy, rate cut expectations may be further adjusted.

In summary, investors should cautiously assess the discrepancies between current market sentiment and actual economic data. While short-term adjustments in rate cut expectations may impact the dollar exchange rate and bond yields, the effects on the stock market may be neutral, especially as recession fears gradually dissipate. However, in the upcoming fall season, the stock market may still experience some volatility due to seasonal and election-related uncertainties.