The US CPI data for July showed that inflation slowed to 2.9%, providing new room for volatility and interpretation in the market

The US Consumer Price Index (CPI) for July released on Wednesday (August 14) once again became the focus of the market. The data showed that inflation slowed to 2.9%, lower than the market expectation of 3%. This marked the first time since March 2021 that the annual rate of CPI returned to the "2". The release of this data undoubtedly brought new volatility and interpretation space to the market.The market reaction to the data was swift and mixed. The flattening of the yield curve on US 2/10-year Treasury bonds shows the market's reassessment of the future direction of interest rates.Meanwhile, the US index rose 33 points in the short term, reaching a high of 102.6899. Non-US currencies generally fell,EuroredeemdollarandPound SterlingAgainst the dollarAll saw short-term declines.

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The Federal Reserve's interest rate cut expectations and market trend analysis

foreign exchange trading platformAnalysts at the Federal Reserve have different views on the future direction of monetary policy. Some argue that the possibility of the Fed cutting interest rates at its September meeting remains despite the July CPI data showing a slowdown in inflation. The change reflects the market's sensitive reaction to Fed policy and cautious expectations for future economic conditions.

Futures trading showed that traders see a 56.5% chance of the Fed cutting rates by 25 basis points at its September meeting and a 43.5% chance of a 50 basis point cut.

From a technical perspective, the slowdown in the US CPI in July and the rise in the unemployment rate appear to provide the Federal Reserve with more room for monetary policy maneuver. However, given the complexity of the labour market, including the impact of immigration on labour supply, the Federal Reserve still needs to exercise caution in setting policy.

The combination of fundamental and technical aspects

In the fundamental analysis, we note that the U.S. core CPI fell for the fourth consecutive month in July, the lowest level since April 2021. This trend is in line with market expectations for a pullback in inflation, providing the Federal Reserve with more policy flexibility. Technically, the market's reaction to the CPI data shows investors' uncertainty about the future direction of the economy, especially in the context of a global slowdown.

Convergence of institutional analyst perspectives

Analysts generally agree that while the CPI data suggest that inflationary pressures have eased, the Federal Reserve still needs to consider a number of factors when formulating monetary policy, including the state of the global economy, domestic labor market conditions, and long-term trends in inflation.

Chris Anstey, Analyst: It is worth noting that the annual CPI inflation rate has now fallen below 3%. This is the lowest level since inflation first ignited in the spring of 2021.

Analysts said that while the monthly rate changes in headline and core CPI were in line with expectations, the actual index levels for both were slightly lower than expected, which helped push the headline CPI annual rate reading down to 2.9% from the expected 3.0%. This is the lowest level since March 2021. Housing inflation is again edging higher, up 0.4% this month compared to 0.2% in June, and overall super-core services inflation (e.g., core services excluding housing) is up 0.21% this month, which is quite modest but higher than the small declines in May and June. Overall, the data are consistent with the deceleration in inflation levels over the past few years, but suggest that price growth has not stopped abruptly. There doesn't seem to be anything here that will bring next month's rate cut to 50 basis points. That may be why short-term bond yields are higher.

Some analysts also believe that the core CPI in the United States rebounded as expected in July, but the trend is consistent with the cooling of inflation and has not changed the expectation of the Federal Reserve to cut interest rates next month. The Bureau of Labor Statistics said on Wednesday that CPI rose 0.2% in July-on-month and rose 2.9% year-on-year after falling 0.1% in June. CPI growth has slowed sharply from its peak year-on-year as rising borrowing costs have cooled demand. While inflation remains high, it is moving towards the Federal Reserve's 2% target. The options for the Fed to cut rates in September are between 25 and 50 basis points, but economists believe the labor market would have to deteriorate significantly for the Fed to cut rates by 50 basis points.

The release of the US CPI data for July has brought new volatility to the market, and also provided investors with an opportunity to reassess the economic outlook and policy expectations. During this process, the immediate reaction of the market, the Federal Reserve's interest rate cut expectations, and the combination of fundamentals and technical aspects will all become key factors affecting the future market trend. As financial editors, we will continue to pay attention to the latest developments in the market and provide readers with timely and in-depth market analysis and interpretation.