On October 10th local time, the U.S. Consumer Price Index (CPI) for September, released before the stock market opened, showed a slower deceleration in the annual rate than expected, while the core indicator unexpectedly rebounded, signaling a halt in the recent trend of falling inflation. The specific data published by the U.S. Bureau of Labor Statistics showed that in September, the U.S. CPI rose by 0.2% month-on-month and 2.4% year-on-year, both 0.1 percentage points higher than market expectations. The market had previously believed that the year-on-year increase would slow from 2.5% to 2.3%.
However, the 2.4% year-on-year growth rate is already the lowest level since March 2021. In the detailed data, food prices rose by 0.4% month-on-month and 2.3% year-on-year; energy prices fell by 1.9% month-on-month and 6.8% year-on-year. Among them, gasoline prices fell by 4.1% month-on-month and 15.3% year-on-year; fuel oil prices fell by 6%, down 22.4% year-on-year.
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Jeffrey Young, former Global Head of Foreign Exchange at Citigroup and Co-founder and CEO of DeepMacro, pointed out to Caijing that inflation is basically on a downward trend, but it is currently in the second small cycle since the Federal Reserve turned dovish in December 2023. Against this backdrop, the U.S. economy is also going through its own small cycle. So far in 2024, the economy has been positively growing for 6 out of 10 months, largely due to the self-correction mechanism of the business cycle itself driven by normalcy rather than financial crisis.
After excluding the more volatile food and energy prices, the core CPI in September rose by 0.3% month-on-month, the same as in August, and failed to slow down to 0.2%; the year-on-year increase was recorded at 3.3%, the highest since June, while the market had expected it to remain unchanged at 3.2%. Among them, housing prices rose by 0.2% month-on-month and 4.9% year-on-year, indicating that housing-related costs remain an issue; the price of medical insurance services rose by 3.6%, both of which are the main reasons for the high core inflation rate.
On October 10th, several senior officials of the Federal Reserve spoke. Most of them believe that although U.S. inflation has not yet reached 2%, they are confident that inflation is moving in the right direction and are not too worried about the higher-than-expected CPI inflation report for September.
After the monetary policy stance was readjusted, how to keep inflation and employment indicators consistent has become the Federal Reserve's latest concern. Data released by the U.S. Department of Labor on the 10th showed that the number of first-time applications for unemployment benefits in the United States for the week ending October 5th surged by 33,000 to 258,000, far higher than the expected 230,000, and the previous value of 225,000. This is the highest number of applications since early August 2023.
This increases the risk for the Federal Reserve to balance its dual mandate goals. Previously, the U.S. Department of Labor reported that the U.S. added 250,000 jobs in September, far exceeding market expectations, and the employment growth for August and July was also revised upwards. The unemployment rate, which had once caused concern, fell from 4.2% to 4.1%. In addition, the latest Job Openings and Labor Turnover Survey (JOLTS) showed that job vacancies in the United States rose to a three-month high of 8.04 million in August. The hiring rate fell to 3.3%, equaling the lowest value since 2013, excluding the initial data of the 2020 pandemic. The service industry, as a pillar of the economy, grew at the fastest pace in a year and a half, with the Institute for Supply Management (ISM) September service index climbing to 54.9%, the highest level since February 2023.
(After the monetary policy stance was readjusted, how to keep inflation and employment indicators consistent has become the Federal Reserve's latest concern. Photo by Jin Yang)According to the latest dot plot released by the Federal Reserve in September, Federal Reserve officials plan to cut interest rates by another half a percentage point before the end of the year, with many expressing that they are closely monitoring the dynamics of the labor market. The initial jobless claims data soared to the highest level in a year, clearly attracting investor attention. Atlanta Federal Reserve Chairman Bostic, a voting member this year, said that based on the recent mixed data, he is absolutely open to the idea of pausing interest rate cuts in November.
Olu Sonola, the head of US economics at Fitch Ratings, told Caijing that the good news is that the overall trend remains deflationary, but the bad news is that inflation in the service sector remains a problem. Inflation is receding but not disappearing. Following the unexpectedly strong employment data in September, this report encourages the Federal Reserve to be cautious about the pace of the easing cycle. The possible interest rate cut in November is still a quarter of a percentage point, but the cut in December should not be taken for granted.
The minutes of the September 17-18 meeting released on October 9 revealed the discussions at the Federal Reserve meeting, allowing the outside world to understand why officials chose to make the first interest rate cut since 2020 by a more aggressive 0.5 percentage points. In the Federal Reserve committee responsible for setting interest rates, 11 out of 12 members supported the decision to lower the benchmark interest rate to between 4.75% and 5%. One policymaker dissented from this decision, preferring a smaller rate cut. The minutes showed that other policymakers may also agree with her reservations. Federal Reserve officials had disagreements on the size of the rate cut at last month's meeting. The vast majority of officials supported the larger 0.5 percentage point cut that was ultimately approved, but some officials supported a smaller 0.25 percentage point cut.
On the 10th, US stocks closed lower. The S&P 500 index closed down 0.21%, at 5,780.05 points. The Dow Jones index, closely related to the economic cycle, closed down 57.88 points or 0.14%, at 42,454.12 points. The technology stock-heavy Nasdaq index closed down 0.05%, at 18,282.05 points. The Nasdaq 100 closed down 0.12%. The NASDAQ Technology Market Value Weighted Index (NDXTMC), which measures the performance of technology stocks in the Nasdaq 100, closed up 0.036%. The Russell 2000 small-cap index, which is more sensitive to the economic cycle, closed down 0.55%. The VIX volatility index closed flat at 20.86.
After this round of interest rate cuts, several Wall Street insiders pointed out to Caijing that another risk is that the cloud of US fiscal problems is still intensifying. Since 2024, US government debt has continued to expand, and the pressure to pay interest has risen rapidly. Data as of August of the natural year 2024 shows that, in the absence of emergencies or wars, the US's full fiscal year deficit is expected to continue to grow by double digits compared to the previous year, and may set a new record for the highest annual deficit outside of the COVID-19 pandemic period.