On Friday (September 11) at 8:30 PM Beijing time, the U.S. Department of Labor released the August Consumer Price Index. The data showed that the U.S. inflation rate remained at 3.4%, unchanged from July and in line with market expectations. High fuel prices were a significant factor supporting overall inflation. Prior to the data release, the market had already priced in approximately a 70% chance of an interest rate hike at the Federal Reserve's policy meeting next week. Following the release of the data, US short-term interest rate futures fell rapidly, with traders significantly increasing their bets on a September rate hike, quickly revising the probability of a rate hike upward to approximately 90%. The yield on the 10-year US Treasury note rose to its highest level since October 23, 2023, reaching 4.957%, approaching the 5% mark. The US dollar index rose by about 25 points in the short term, reaching a high of 99.33. Spot gold rose before the data release but then quickly fell back, exhibiting significant intraday volatility. The COMEX gold futures contract also saw intraday adjustments. The market as a whole is repricing the path of potentially two Fed rate hikes before the end of the year. Before and after the data release, institutional and retail investors held contrasting views. Before the release, some institutional accounts emphasized the continued stickiness of inflation and the unresolved risks of fuel cost transmission, favoring a hawkish stance from the Fed; retail investors, on the other hand, discussed the possibility of a "meeting expectations or a slightly dovish stance," with some hoping for a further decline in inflation to reduce pressure for rate hikes. Following the release, institutional accounts quickly updated their reports, noting that the data remaining stable at 3.4% reinforced the cautious stance ahead of the policy meeting, and that the short-term interest rate market reaction clearly pointed to a higher probability of rate hikes. Retail investor discussions shifted to the sharp drop in gold prices and the rise in US Treasury yields, with some expressing surprise at the accelerated tightening of interest rates, while others focused on the continued impact of fuel prices on subsequent sub-items.

Deep interconnect analysis

From a fundamental perspective, the August CPI remained stable at 3.4%, primarily driven by persistently high fuel prices. High gasoline and diesel costs directly pushed up energy prices and indirectly affected other commodity prices through transportation costs. Strong demand for AI-related hardware, leading to tight supply of storage and chips, also supported prices for some consumer electronics. Historical comparisons show that the pace of inflation decline has slowed in recent months, and the current reading continues this sticky characteristic. Combined with the latest quotes, the yield on the 10-year US Treasury note rose to a near three-year high, reflecting a market reassessment of the policy rate path; the short-term strengthening of the US dollar index, coupled with a decline in short-term interest rate futures, indicates that traders are rapidly adjusting their bets on a Fed rate hike next week. From a technical perspective, the immediate reaction of the interest rate market is the most direct. The decline in short-term interest rate futures corresponds to a jump in the probability of a rate hike from approximately 70% to approximately 90%, indicating a significant shift in market pricing for next week's meeting. In the gold market, spot prices rose slightly before the data release, then quickly fell by more than $40 after the release, subsequently fluctuating around $4,300; COMEX gold futures also recorded intraday losses. This initial rise followed by a fall aligns with the logic of upward revisions in interest rate expectations and a short-term strengthening of the US dollar. Overall, the long-term and short-term logics remain consistent: short-term trading focuses on the probability repricing before the policy meeting, while the medium-term focus is on whether inflation stickiness continues to constrain policy space. Among related assets, interest rate-sensitive assets are under more significant pressure, with gold experiencing increased volatility but its direction constrained by the upward shift in real interest rate expectations. The divergence between the perspectives of well-known institutions and retail investors is also noteworthy. Institutions interpret the data more from the perspective of policy divergence and inflation expectation anchoring, emphasizing that although the data met expectations, fuel and supply chain factors may still prolong the period of high inflation, thus supporting a higher probability of interest rate hikes. Retail investor discussions focus more on immediate market fluctuations, showing greater sensitivity to the sharp drop in gold prices and the approaching 5% yield on US Treasury bonds, with some views being optimistic before the release but quickly adjusted afterward. The discrepancy between expectations before and after the event lies in whether "meeting expectations" equates to "policy remaining unchanged"—the data itself is neutral, but combined with recent statements from officials and interest rate futures pricing, the market has chosen a more hawkish interpretation.

Trend Outlook

Market movements indicate that short-term interest rates and US Treasury yields have already priced in a higher probability of rate hikes, supporting the US dollar index. If fuel-related pressures within the inflation component do not ease significantly, the repricing of the interest rate path may extend further. Gold prices have become more volatile after the upward revision of interest rate expectations, and their movements will increasingly follow real interest rates and the US dollar. The overall market is shifting from "data meeting expectations" to "probability confirmation before the policy meeting," with market logic revolving around the certainty of the Fed's actions next week. The pricing of consecutive policy rate adjustments before the end of the year is also being considered by more traders. The focus remains on whether inflation stickiness will persist and the wording of the policy meeting itself.

Further Reading

Q: Why did the August CPI remaining stable at 3.4% still significantly increase the probability of an interest rate hike? While the data was in line with expectations, high fuel prices reinforced the perception of sticky inflation. Combined with previous policy meetings that had already expressed a tendency towards interest rate hikes, the market interpreted the "no further decline" as support for a hawkish option, thus quickly revising the probability of a rate hike next week upwards. Q: Why did gold rise and then fall before and after the data release? Before the release, some traders bet on a slightly dovish data release and positioned themselves in advance, pushing up gold prices; after the release, interest rate expectations quickly shifted, and real interest rates and a stronger dollar exerted downward pressure, leading to a rapid decline. This fluctuation reflects the immediate reaction of interest rate-sensitive assets to changes in policy probability. Q: What does the US 10-year Treasury yield approaching 5% mean? The yield rising to a near three-year high directly corresponds to the market's reassessment of the policy interest rate path. The simultaneous decline in short-term interest rate futures and the upward revision of the probability of a rate hike indicates that traders are pricing in higher policy interest rate expectations in medium- to long-term pricing. Q: Where do the main differences lie between institutional and retail investors' views? Institutional investors focused more on the medium-term logic of policy divergence and inflation expectation anchoring, emphasizing fuel and supply chain factors; retail investors paid more attention to immediate market fluctuations, reacting more directly to sharp drops in gold and rises in US Treasury yields. After the data release, both shifted towards confirming a higher probability of rate hikes, but institutional interpretations were more systematic. Q: How was the pricing of two possible rate hikes before the end of the year formed? After the data release, the short-term interest rate market not only revised upwards the probability of a rate hike next week to approximately 90%, but also incorporated the adjustment space for subsequent meetings. The persistence of fuel prices and the stickiness of inflation are the main logic supporting this pricing path, and the market has thus completed a revaluation from a single hike to multiple hikes.