The US data is "conflicting" again: inflation and unemployment cannot be reduced, what should the market do?
2025-09-11 21:00:07
On Thursday (September 11th) at 8:30 PM Beijing Time, the U.S. Department of Labor released the Consumer Price Index (CPI) for August 2025 and initial jobless claims for the week ending September 6th, sparking a strong market reaction. The CPI rose 2.9% year-on-year in August, in line with market expectations and the highest level since January this year, compared to the previous reading of 2.7%. It also rose 0.4% month-on-month, exceeding the expected 0.3% and the previous reading of 0.2%. The core CPI (excluding food and energy) remained flat at 3.1% year-on-year and rose 0.3% month-on-month, both in line with expectations. Initial jobless claims surged to 263,000, far exceeding market expectations of 235,000 and reaching the highest weekly level since October 2021, indicating a significant slowdown in the labor market.
These data indicate persistently high inflationary pressures, while a deteriorating labor market has heightened concerns about stagflation. This article will analyze the market impact of these data, drawing on the immediate market reaction, asset price performance, the impact on expectations of a Fed rate cut, and future trends, combining the perspectives of both institutional and retail investors.
After the data was released, the market quickly digested the dual signals of high inflation and a weak labor market. The US stock market reacted cautiously, with the S&P 500 and Nasdaq indices fluctuating slightly after the opening bell, falling 0.3% and 0.2%, respectively, reflecting investor concerns about the risk of stagflation. The US dollar index (DXY) quickly retreated from 97.93 to 97.73, a drop of approximately 0.2%, indicating increased market expectations for easing Federal Reserve policy. In the US Treasury market, the 10-year Treasury yield fell 1.26% during the day, currently at 3.998%, marking the first time it has fallen below 4% since early April. This suggests that bond market concerns about inflationary pressures have eased somewhat, but the steepening yield curve (the gap between the two-year and ten-year yields widened to 51.3 basis points) suggests that the market remains divided on the long-term economic outlook.
The precious metals market reacted particularly sharply. Spot gold prices surged approximately $20 after the data was released, reaching a high of $3,634.15 per ounce, but subsequently retreated to $3,630.13 per ounce, a 0.28% loss on the day. This suggests that safe-haven demand has stabilized after a brief surge. COMEX gold futures were trading at $3,667.20 per ounce, down 0.40% on the day. Spot platinum broke through the $1,390.00 mark and is currently trading at $1,390.20, up 0.34% on the day, reflecting the precious metals market's sensitivity to inflation and economic uncertainty. In the foreign exchange market, the euro/dollar pair fell below the $1.17 mark, currently trading at $1.1690. The dollar/yen pair broke through the 148.00 mark, trading at 148.09, up 0.44% on the day, coinciding with the option expiration range of 147.00-147.50, indicating that option deliveries exacerbated exchange rate fluctuations.
Compared to market expectations before the data release, investors, influenced by Trump's tariff rhetoric, generally expected August CPI to exceed expectations, with some institutions even betting that the core CPI would break 3.2%. However, the actual data met expectations, with the core CPI stabilizing at 3.1%, but the initial jobless claims data far exceeded expectations, shattering the market's optimistic assumptions about labor market resilience. Risk appetite quickly cooled, and safe-haven assets briefly strengthened.
The high August CPI data indicates that inflationary pressures remain stubborn, particularly with the core CPI remaining at 3.1% for the third consecutive month, demonstrating the stickiness of underlying inflation. A 0.4% increase in housing costs was the primary driver of the month-over-month CPI increase. The food CPI rose from 2.9% to 3.2%, while the energy CPI turned positive at 0.2%. Among core goods, the CPI for used cars and trucks rose to 6% year-over-year, while the CPI for new cars rose to 0.7%, reflecting rising demand-side pressures. Initial jobless claims surged to 263,000. Combined with the recent downward revision to non-farm payrolls (overestimating 911,000 jobs over the 12-month period) and the near-stagnant job growth in August, signals of labor market slack are becoming increasingly clear.
Market expectations for a Fed rate cut have become a key focus. According to the CME FedWatch tool, after the data was released, market expectations for a 25 basis point rate cut in September fell from 65% to 60%, reflecting the constraints on accommodative policy imposed by high inflation, while a deteriorating labor market still maintains a dominant rate cut outlook. By contrast, before the data was released, market expectations for a September rate cut were as high as 70%, with some investors even betting on a 50 basis point cut. This divergence in institutional views is highlighted. An analyst from a prominent institution stated, "The August CPI was in line with expectations, but the stickiness of core inflation and the deterioration in initial jobless claims data suggest rising stagflation risks. The Fed may delay a rate cut until the fourth quarter and may hold off on any action at the September meeting." Retail investors were more pessimistic, with one trader commenting, "The initial jobless claims data is terrible, with clear signs of an economic slowdown. The Fed may be forced to cut rates, but inflationary pressures are putting them in a difficult position." Another retail investor commented, "The CPI data offered no surprises, so a surge and then a decline in gold prices is normal. The US dollar is likely to fluctuate in the short term, so keep an eye on US Treasury yields."
The data breakdown shows that the main sources of inflationary pressure are concentrated in the housing and service industries, while the deterioration of the labor market has exacerbated market concerns about an economic slowdown. The core service CPI remained stable at 3.9% year-on-year, but airline fares, used car and truck prices rose month-on-month, indicating that the demand side remains resilient. However, the prices of medical care, entertainment and communications fell month-on-month, and combined with the high initial jobless claims data, it shows that consumer demand may face further pressure. The impact of Trump's tariff remarks is gradually emerging. Institutional analysis points out that companies have exhausted their previous low-priced inventories, and imported inflation may push up core commodity prices in the coming months. An investment bank analyst said: "Inflationary pressure will not subside in the short term. The impact of tariffs may erupt in the fourth quarter, and the core CPI may exceed 3.2%."
Compared to historical trends, in the fourth quarter of 2024, the market generally expected the Federal Reserve to pause its rate cuts and possibly even raise them, driven by rising inflation expectations and a resilient labor market. However, data from August 2025 showed that inflation, while high but not out of control, had significantly deteriorated in the labor market, prompting a shift in market sentiment from an "inflation trade" to a "stagflation trade." Retail investor sentiment reflected this shift, with traders commenting, "Stocks are under short-term pressure, with gold and US Treasuries being the preferred safe havens, but the long-term risk of an economic slowdown is greater." Institutional investors, however, are more focused on structural issues. One analyst noted, "The steepening yield curve suggests continued market confidence in long-term growth, but short-term inflation and employment data are conflicting, prompting caution against a rebound in US Treasury yields."
The cautious stock market reaction reflects the pressure stagflation concerns are exerting on risk assets, with technology and consumer goods sectors suffering significant losses, down 0.5% and 0.4%, respectively. A brief surge in gold and platinum suggests heightened risk aversion, but the pullback suggests that market expectations of a hard landing risk have yet to fully take hold. In the foreign exchange market, AUD/USD and USD/CAD saw increased volatility within the option expiration ranges (0.6555-0.6650 and 1.3760-1.3910), demonstrating the short-term impact of option deliveries on exchange rates. USD/JPY broke through the 148.00 mark, reflecting a temporary weakening of demand for the yen as a safe haven.
The decline in U.S. Treasury yields is a key signal of market sentiment. The 10-year Treasury yield fell below 4%, a significant decline from its July high of 4.679%, reflecting a temporary downward revision in market inflation expectations. However, the steepening of the yield curve suggests investors are growing confident in long-term economic growth while remaining wary of short-term inflationary pressures. A bond trader commented, "The decline in U.S. Treasury yields reflects the CPI's in-line expectations, but the deterioration in initial jobless claims data could fuel safe-haven demand, potentially leading to increased yield volatility in the short term."
Looking ahead, the market needs to closely monitor the evolution of inflation and labor market data. In the short term, elevated inflation and a weak labor market are likely to keep the Federal Reserve on hold at its September meeting, but a rate cut remains likely in the fourth quarter, with a baseline scenario of 25 basis points. In the medium term, the impact of Trump's tariff rhetoric is likely to gradually become apparent in the fourth quarter, with core commodity CPIs (such as home appliances and apparel) potentially rebounding due to imported inflation, pushing up overall prices. Energy prices are likely to remain subdued due to slowing global demand and increased OPEC+ production, but weakening base effects may limit the downward momentum in inflation.
In terms of asset allocation, risk assets may continue to fluctuate in the short term. The appeal of gold and US Treasuries as safe-haven assets will increase, but caution should be exercised regarding the impact of a rebound in inflation on yields. The US dollar index may come under pressure due to rising expectations of rate cuts, and EUR/USD and USD/JPY may experience increased volatility within the option expiration range in the short term. Institutional perspectives suggest: "Investors should monitor core CPI and non-farm payroll data. In the short term, they can increase their holdings of gold and defensive assets, but in the medium term, they should be wary of the impact of a rebound in inflation on US Treasuries and the US dollar." Retail investors, on the other hand, are more focused on trading opportunities. Traders suggest: "Gold can be long in the short term, USD/JPY may experience a pullback, and attention should be paid to the next wave of US Treasury yields."
Overall, the release of August's CPI and initial jobless claims data has heightened market concerns about stagflation, with high inflation and a deteriorating labor market creating dual pressures. The Federal Reserve's policy path will remain cautious in balancing inflation and growth, and market sentiment may fluctuate between short-term risk aversion and long-term caution. Investors should closely monitor subsequent data and geopolitical developments to navigate market uncertainty.
These data indicate persistently high inflationary pressures, while a deteriorating labor market has heightened concerns about stagflation. This article will analyze the market impact of these data, drawing on the immediate market reaction, asset price performance, the impact on expectations of a Fed rate cut, and future trends, combining the perspectives of both institutional and retail investors.
Immediate market reaction: Risk aversion intensifies, asset prices diverge
After the data was released, the market quickly digested the dual signals of high inflation and a weak labor market. The US stock market reacted cautiously, with the S&P 500 and Nasdaq indices fluctuating slightly after the opening bell, falling 0.3% and 0.2%, respectively, reflecting investor concerns about the risk of stagflation. The US dollar index (DXY) quickly retreated from 97.93 to 97.73, a drop of approximately 0.2%, indicating increased market expectations for easing Federal Reserve policy. In the US Treasury market, the 10-year Treasury yield fell 1.26% during the day, currently at 3.998%, marking the first time it has fallen below 4% since early April. This suggests that bond market concerns about inflationary pressures have eased somewhat, but the steepening yield curve (the gap between the two-year and ten-year yields widened to 51.3 basis points) suggests that the market remains divided on the long-term economic outlook.
The precious metals market reacted particularly sharply. Spot gold prices surged approximately $20 after the data was released, reaching a high of $3,634.15 per ounce, but subsequently retreated to $3,630.13 per ounce, a 0.28% loss on the day. This suggests that safe-haven demand has stabilized after a brief surge. COMEX gold futures were trading at $3,667.20 per ounce, down 0.40% on the day. Spot platinum broke through the $1,390.00 mark and is currently trading at $1,390.20, up 0.34% on the day, reflecting the precious metals market's sensitivity to inflation and economic uncertainty. In the foreign exchange market, the euro/dollar pair fell below the $1.17 mark, currently trading at $1.1690. The dollar/yen pair broke through the 148.00 mark, trading at 148.09, up 0.44% on the day, coinciding with the option expiration range of 147.00-147.50, indicating that option deliveries exacerbated exchange rate fluctuations.
Compared to market expectations before the data release, investors, influenced by Trump's tariff rhetoric, generally expected August CPI to exceed expectations, with some institutions even betting that the core CPI would break 3.2%. However, the actual data met expectations, with the core CPI stabilizing at 3.1%, but the initial jobless claims data far exceeded expectations, shattering the market's optimistic assumptions about labor market resilience. Risk appetite quickly cooled, and safe-haven assets briefly strengthened.
Fed rate cut expectations: Markets grapple with stagflation risks
The high August CPI data indicates that inflationary pressures remain stubborn, particularly with the core CPI remaining at 3.1% for the third consecutive month, demonstrating the stickiness of underlying inflation. A 0.4% increase in housing costs was the primary driver of the month-over-month CPI increase. The food CPI rose from 2.9% to 3.2%, while the energy CPI turned positive at 0.2%. Among core goods, the CPI for used cars and trucks rose to 6% year-over-year, while the CPI for new cars rose to 0.7%, reflecting rising demand-side pressures. Initial jobless claims surged to 263,000. Combined with the recent downward revision to non-farm payrolls (overestimating 911,000 jobs over the 12-month period) and the near-stagnant job growth in August, signals of labor market slack are becoming increasingly clear.
Market expectations for a Fed rate cut have become a key focus. According to the CME FedWatch tool, after the data was released, market expectations for a 25 basis point rate cut in September fell from 65% to 60%, reflecting the constraints on accommodative policy imposed by high inflation, while a deteriorating labor market still maintains a dominant rate cut outlook. By contrast, before the data was released, market expectations for a September rate cut were as high as 70%, with some investors even betting on a 50 basis point cut. This divergence in institutional views is highlighted. An analyst from a prominent institution stated, "The August CPI was in line with expectations, but the stickiness of core inflation and the deterioration in initial jobless claims data suggest rising stagflation risks. The Fed may delay a rate cut until the fourth quarter and may hold off on any action at the September meeting." Retail investors were more pessimistic, with one trader commenting, "The initial jobless claims data is terrible, with clear signs of an economic slowdown. The Fed may be forced to cut rates, but inflationary pressures are putting them in a difficult position." Another retail investor commented, "The CPI data offered no surprises, so a surge and then a decline in gold prices is normal. The US dollar is likely to fluctuate in the short term, so keep an eye on US Treasury yields."
Market sentiment changes: from inflation concerns to stagflation panic
The data breakdown shows that the main sources of inflationary pressure are concentrated in the housing and service industries, while the deterioration of the labor market has exacerbated market concerns about an economic slowdown. The core service CPI remained stable at 3.9% year-on-year, but airline fares, used car and truck prices rose month-on-month, indicating that the demand side remains resilient. However, the prices of medical care, entertainment and communications fell month-on-month, and combined with the high initial jobless claims data, it shows that consumer demand may face further pressure. The impact of Trump's tariff remarks is gradually emerging. Institutional analysis points out that companies have exhausted their previous low-priced inventories, and imported inflation may push up core commodity prices in the coming months. An investment bank analyst said: "Inflationary pressure will not subside in the short term. The impact of tariffs may erupt in the fourth quarter, and the core CPI may exceed 3.2%."
Compared to historical trends, in the fourth quarter of 2024, the market generally expected the Federal Reserve to pause its rate cuts and possibly even raise them, driven by rising inflation expectations and a resilient labor market. However, data from August 2025 showed that inflation, while high but not out of control, had significantly deteriorated in the labor market, prompting a shift in market sentiment from an "inflation trade" to a "stagflation trade." Retail investor sentiment reflected this shift, with traders commenting, "Stocks are under short-term pressure, with gold and US Treasuries being the preferred safe havens, but the long-term risk of an economic slowdown is greater." Institutional investors, however, are more focused on structural issues. One analyst noted, "The steepening yield curve suggests continued market confidence in long-term growth, but short-term inflation and employment data are conflicting, prompting caution against a rebound in US Treasury yields."
Asset price performance: bull-bear game intensifies
The cautious stock market reaction reflects the pressure stagflation concerns are exerting on risk assets, with technology and consumer goods sectors suffering significant losses, down 0.5% and 0.4%, respectively. A brief surge in gold and platinum suggests heightened risk aversion, but the pullback suggests that market expectations of a hard landing risk have yet to fully take hold. In the foreign exchange market, AUD/USD and USD/CAD saw increased volatility within the option expiration ranges (0.6555-0.6650 and 1.3760-1.3910), demonstrating the short-term impact of option deliveries on exchange rates. USD/JPY broke through the 148.00 mark, reflecting a temporary weakening of demand for the yen as a safe haven.
The decline in U.S. Treasury yields is a key signal of market sentiment. The 10-year Treasury yield fell below 4%, a significant decline from its July high of 4.679%, reflecting a temporary downward revision in market inflation expectations. However, the steepening of the yield curve suggests investors are growing confident in long-term economic growth while remaining wary of short-term inflationary pressures. A bond trader commented, "The decline in U.S. Treasury yields reflects the CPI's in-line expectations, but the deterioration in initial jobless claims data could fuel safe-haven demand, potentially leading to increased yield volatility in the short term."
Outlook for future trends: Dual challenges of inflation and economic slowdown
Looking ahead, the market needs to closely monitor the evolution of inflation and labor market data. In the short term, elevated inflation and a weak labor market are likely to keep the Federal Reserve on hold at its September meeting, but a rate cut remains likely in the fourth quarter, with a baseline scenario of 25 basis points. In the medium term, the impact of Trump's tariff rhetoric is likely to gradually become apparent in the fourth quarter, with core commodity CPIs (such as home appliances and apparel) potentially rebounding due to imported inflation, pushing up overall prices. Energy prices are likely to remain subdued due to slowing global demand and increased OPEC+ production, but weakening base effects may limit the downward momentum in inflation.
In terms of asset allocation, risk assets may continue to fluctuate in the short term. The appeal of gold and US Treasuries as safe-haven assets will increase, but caution should be exercised regarding the impact of a rebound in inflation on yields. The US dollar index may come under pressure due to rising expectations of rate cuts, and EUR/USD and USD/JPY may experience increased volatility within the option expiration range in the short term. Institutional perspectives suggest: "Investors should monitor core CPI and non-farm payroll data. In the short term, they can increase their holdings of gold and defensive assets, but in the medium term, they should be wary of the impact of a rebound in inflation on US Treasuries and the US dollar." Retail investors, on the other hand, are more focused on trading opportunities. Traders suggest: "Gold can be long in the short term, USD/JPY may experience a pullback, and attention should be paid to the next wave of US Treasury yields."
Overall, the release of August's CPI and initial jobless claims data has heightened market concerns about stagflation, with high inflation and a deteriorating labor market creating dual pressures. The Federal Reserve's policy path will remain cautious in balancing inflation and growth, and market sentiment may fluctuate between short-term risk aversion and long-term caution. Investors should closely monitor subsequent data and geopolitical developments to navigate market uncertainty.
- Risk Warning and Disclaimer
- The market involves risk, and trading may not be suitable for all investors. This article is for reference only and does not constitute personal investment advice, nor does it take into account certain users’ specific investment objectives, financial situation, or other needs. Any investment decisions made based on this information are at your own risk.
