How does Wall Street view the US CPI? It is difficult to claim victory over inflation, and there may still be future interest rate hikes.

The U.S. Bureau of Labor Statistics released data on October 12th, showing that the U.S. CPI rose by 3.7% YoY in September, the same as the previous month, exceeding expectations of 3.6%. The MoM growth rate slowed down from 0.6% in the previous month to 0.4%, surpassing expectations of 0.3%, indicating that inflation remains stubborn.

However, the Federal Reserve is more concerned about the core CPI, which has slowed down. The data shows that the core CPI, which excludes food and energy costs, decreased from 4.3% in the previous month to 4.1%, the smallest increase in nearly two years. However, this increase is still above 4%, far exceeding the Fed's target level of 2%. Moreover, the core CPI growth rate remained at 0.3%, the same as the previous month and in line with expectations.

After the data was released, the Dow Jones Industrial Average fell more than 100 points at the opening, and although it briefly stabilized during the session, the decline later expanded to 0.56%; the S&P 500 index fell nearly 0.7% during the session, and the Nasdaq index fell 0.73%.

"New Fed News Agency": The road to curbing inflation remains difficult

Most Wall Street analysts are cautious about the CPI data. In an article by well-known journalist Nick Timiroas, also known as the "New Fed News Agency," he wrote that the Fed's efforts to curb inflation were hindered last month, and the road ahead remains difficult.

Federal Reserve officials recently hinted at a pause in interest rate hikes and indicated that they would maintain the current level of short-term interest rates at the next meeting, due to concerns that the high long-term rates over the past few months would drag down the economy. If borrowing costs remain high, the effect is the same as raising interest rates.

Nick Timiroas stated that if there is stronger evidence that price pressures and economic activity are cooling down, Fed officials may feel confident in maintaining rate stability. However, based on the current situation, it is unlikely that the Fed will announce an indefinite pause in rate hikes or exclude rate hikes at the December meeting.

Therefore, it can be concluded that the Fed's efforts to combat inflation have achieved some results, but it is certainly not yet time to declare victory.

Earlier, the rise in oil prices led to a sharp increase in CPI in August, but the increase in oil prices in September was not significant and has declined in recent weeks. However, due to tensions in the Middle East, oil prices have risen again this week. Nick Timiroas stated that although the Fed does not focus on commodity prices as they are not very sensitive to interest rate changes, soaring gasoline prices will undoubtedly hit consumer confidence and spending, and will also increase costs for air travel and shipping industries.

But the good news is that housing costs are expected to alleviate overall inflation pressure in the coming months, with the housing index increasing by 0.6% MoM in September. On the other hand, used car prices have dropped significantly, with a YoY decrease of 2.5% in September, and an 8% decrease over the past year.

He stated that before the Fed's November meeting, the Department of Commerce will release the PCE price index report, which is the Fed's most favored price indicator and is expected to play a more important role in Fed decision-making.

Media analysis suggests that the weakening bond market has made the prospect of a soft landing for the U.S. economy more complicated. The Fed's increase in short-term interest rates to curb inflation usually leads to a surge in long-term bond yields, increasing mortgage and car loan costs, as well as other large expenditure loans. Currently, such long-term bond yields have reached a 16-year high, which may further slow down the real estate market and dampen consumer home-buying expenditures. Labor market remains strong, possibility of further rate hikes this year

Nick Timiroas mentioned in the article that the employment data released last week showed a slowdown in wage growth in September. If this trend continues, it may help push the inflation rate back to 2%.

However, workers in multiple industries have been going on strike recently, demanding higher wages, which could lead to an overall increase in wages. Analysts say this will continue to put upward pressure on prices in the basic services sector, which is one of the least desirable situations for the market.

Some media outlets believe that the latest CPI data indicates that a robust labor market is supporting consumers, which may continue to put upward pressure on prices, exceeding the Federal Reserve's target. Analysts say that as inflation slows down, a strong labor market means the possibility of inflation picking up again cannot be ignored, which also makes the Federal Reserve quite nervous. Currently, there is no consensus on whether there will be another rate hike this year.

Analysts say that the September CPI data did not convince most Fed officials that interest rates can fully contain price increases. It is expected that the Fed will maintain interest rates stability this year, but the risk of another rate hike cannot be ignored.

Analysts at Charles Schwab UK said that although the degree of inflation slowdown is not disappointing to the Federal Reserve, the strong employment data before September's CPI data is not surprising. Regardless of whether the Federal Reserve chooses to raise interest rates, as long as combating inflation remains difficult, it will be difficult for interest rates to decline.

Analysts at CBK said that although inflation is slowing down, the pace is too slow. From the perspective of the Fed, the September CPI data may not be enough to trigger another rate hike, but the data is not good enough to suggest that everything is fine.

Analysts at BMO Capital Market said that overall, the September data is consistent with the Fed's previous stance, which is to keep interest rates at a level that can limit inflation and maintain it for a longer period of time.

Analysts at MUFG said that the Federal Reserve has already hinted in previous comments that its consideration has shifted from the level of interest rates to the duration of maintaining high interest rates. The September data and the recent statements by the Federal Reserve indicate that it will be difficult for the 10-year US Treasury yield to reach 5%, although not impossible. The double top in the September 10-year US Treasury yield may indicate a recent peak.

Optimists: Core CPI slowdown, no reason to raise rates this year

However, some analysts have an optimistic view of the September CPI data. Analysts at Capital Economics said that the slowdown in core CPI growth means that the Federal Reserve has no reason to raise rates at the next meeting. It is expected that inflation will further decline, and weak economic growth will lead to a larger rate cut next year, exceeding the market's digestion speed.

Analysts at Premier Minton Investor said that the core inflation data for September met expectations, giving the Federal Reserve room to continue cautious operations. Overall, the economy remains resilient in a tight monetary environment, mainly supported by the job market. Those who are hoping for an economic soft landing will not be disappointed by the September data, but they also do not want inflation to continue to rise. Morgan Stanley analysts stated that the September CPI data met expectations, and it is expected that CPI will be able to drop below 2% by the fourth quarter of next year. Currently, there is still one year to go before reaching the Fed's target.