The US CPI data for September will be released soon. The mainstream market expectations focus on the numerical judgment that "energy will push up overall inflation and core inflation will slow down at the margin." The pricing for the Federal Reserve to suspend interest rate hikes in October is close to 80%. In the view of the Wmax macro research team, the core value of this data does not lie in whether the single-point value is in line with expectations, but in the transmission progress of energy price shocks to core inflation, and the pricing fragility behind the consensus market expectations - when most transactions are betting in the same direction, a small exceedance may trigger a rapid amplification of volatility.

Inflation structure: energy drives the overall rise, while the core is slowing down but there are hidden risks of proliferation

Wmax combines market consensus expectations and sub-item structure judgments. In September, the overall CPI is expected to increase by 0.6% month-on-month and to 3.6% year-on-year, which will be the largest monthly increase in five months. The core CPI is expected to increase by 0.2% month-on-month and slightly rise to 2.5% year-on-year, showing an obvious structural differentiation of "overall hot and core warm". Energy is the absolute core driver of this overall upward inflation. Driven by conflicts in the Middle East, shipping risks in the Strait of Hormuz and tight global supplies of refined oil products, Brent crude oil rose by more than 14% in September and about 42% in the third quarter, and U.S. retail gasoline prices rose to multi-month highs.

Wmax estimates that the energy sub-item is expected to increase by about 5% month-on-month. At the same time, rising aviation fuel costs will push air ticket prices to increase by about 3% month-on-month, becoming the main driving force for service items. At the core inflation level, the slowdown in the housing sub-sector is still the main drag. It is expected that the owner's equivalent rent (OER) will increase by 0.20% month-on-month, and the actual rent will increase by 0.17% month-on-month, continuing the cooling trend. On the commodity side, there is differentiation, with the prices of used cars and some medical categories falling, roughly offsetting the increase in leisure supplies and information technology products.

Wmax specifically reminds that the current inflation is characterized by "point hot spots" and has not yet seen a 2022-style comprehensive price acceleration. This is the basis for the Federal Reserve to still observe patiently. However, the market generally underestimates two types of potential proliferation risks: first, the layer-by-layer transmission of energy prices to transportation, food, and manufacturing, and the lagging impact of high oil prices has not yet fully emerged; second, the cost pressure brought by AI infrastructure investment has begun to push up prices in fields such as computers, chips, construction, and aviation. This type of supply-based inflation does not fall back with the demand cycle and is an important upward risk for core inflation to exceed expectations.

Policy game: October suspension is the benchmark, be wary of reverse revisions to consensus expectations

The Federal Reserve just completed its first interest rate hike in three years in September, raising the federal funds rate target range to 3.75%-4.00%. There are still clear internal differences on the pace of subsequent policy: Waller and other officials prefer to take actions at intervals and believe that there is no need to raise interest rates at two consecutive meetings; Hammack is more hawkish and believes that inflationary pressure has spread to more areas and supports small and frequent policy adjustments, but is still open to whether to take action in October.

The current market pricing is clearly biased towards no change in October: CME Group’s FedWatch tool shows that the probability of a rate hike in October is only about 20%, while the probability of a December rate hike is as high as 88%. Wmax judged that the suspension of interest rate hikes in October is still the baseline situation, and there are two core logics: First, after the first interest rate hike in September, the Federal Reserve needs time to evaluate the policy transmission effect and the actual impact of the tightening of financial conditions, which is a normal observation window; second, the 10-year U.S. bond yield continues to run above 5%, and the rise in long-term interest rates has passively tightened financial conditions, replacing the function of policy interest rate hikes to a certain extent.

However, Wmax also emphasized that the market’s pricing of “no interest rate hike in October” is too consistent, which exactly constitutes a vulnerability in pricing. If the core CPI exceeds expectations and reaches 0.3% or above on a month-on-month basis, it is verified that energy shocks have begun to spread to core goods and services, and the market will quickly reprice the probability of an interest rate hike in October, triggering short-term violent fluctuations in interest rates and exchange rates. From a full-year perspective, another rate hike before the end of the year is still a high probability event, and market differences are only about timing, not direction.

Asset Impact: Asymmetric Responses and Pricing Boundaries in Bond Markets

After a sharp adjustment after the interest rate hike in September, the 10-year U.S. Treasury yield has risen to near a 24-year high. The current market response to CPI shows obvious asymmetric characteristics. Wmax believes that the impact of this data on the bond market follows the law of “a top has a top and a bottom has a bottom”:

• If inflation exceeds expectations, short-term interest rates will quickly price in expectations of an interest rate hike in October, but the long-term will be suppressed by the economic outlook, with limited upside space and the yield curve will tend to flatten;
• If inflation is in line with expectations or is weak, short-term interest rate hike expectations will fall. However, in the long-term, the downside will be limited due to fiscal supply pressure and a rebound in term premiums.

There are two major verification signals that need to be paid attention to in the future: September PPI data released on Thursday will further verify the transmission effect of energy costs to the production side; Federal Reserve Chairman Warsh’s speech at the IMF annual meeting on Friday will be the last official policy statement before the silent period. The combination of CPI data + official speeches is the complete basis for judging the policy path in the fourth quarter.

Overall, the current market is still stuck in the linear narrative of "data in line with expectations → no interest rate hike in October" and lacks understanding of the risks of inflationary spread, the fragility of consensus expectations, and the bottom constraints on long-term interest rates. Wmax will continue to track the market reaction and policy signal evolution after the data is released, and provide dynamic research and judgment for the allocation of large categories of assets.