On the evening of October 10th, the United States released its September CPI data, with a CPI increase of 0.2% month-on-month, exceeding expectations of 0.1%, and matching the previous value of 0.2%; the core CPI increased by 0.3% month-on-month, exceeding expectations of 0.2%, and also matching the previous value of 0.3%. Following the release of the data, the probability of a 25bp rate cut in November stands at 86.9%, with a 13.1% chance of no rate cut, and a 0% chance of a 50bp rate cut. What information is worth paying attention to?

Firstly, the overall U.S. inflation data for September is considered moderate, slightly higher than expected, and essentially flat compared to the previous month. The CPI increased by 0.18% month-on-month, close to the previous month's 0.19%, corresponding to an annualized rate of 2.2%; the average monthly increase over the past three months is 0.17%; the core CPI increased by 0.31% month-on-month, also close to the previous month's 0.28%. Breaking down the main categories, among goods, there was a rebound in food, clothing, and used cars; among services, it was healthcare and transportation services. However, the housing category, which grew rapidly in August, saw a marginal cooling in September, with the housing category decreasing from 0.52% to 0.22% month-on-month, of which the owner's equivalent rent (weighted at 26.9%) decreased from 0.50% to 0.33%.

Secondly, the supercore inflation, excluding housing and energy, slightly accelerated month-on-month. The supercore inflation increased by 0.40% month-on-month in September, up from 0.33% in the previous month. In terms of detailed items, it was mainly due to contributions from motor vehicle insurance, professional medical services, and airfare prices, with most other items slowing down compared to last month. The rebound in supercore inflation from August to September was mainly driven by the transportation category, which has historically been more volatile and may not reflect a trend. Due to the high base in September of last year, supercore inflation year-on-year slightly decreased from 4.45% to 4.27%, still in a downward channel.

Thirdly, several Federal Reserve officials have expressed a preference for rate cuts despite inflation. New York Fed President Williams (voter), Chicago Fed President Goolsbee (voter in 2025), and Richmond Fed President Barkin (voter in 2024) did not pay much attention to the September inflation data that exceeded expectations, believing that inflation is still in a downward process, implying continued rate cuts. Atlanta Fed President Bostic believes that only a 25bp rate cut may be appropriate this year (voter in 2024), meaning that there will be one meeting in November and December where no rate cut occurs. The Fed's September meeting provided a dot plot indicating a total of 50bp rate cuts for the November-December meetings, but the dot plot showed significant disagreement (10 people support a rate cut of 50bp or more, and 9 people do not support it). From the recent statements of the four officials, the September inflation data may not have significantly tilted the "scale" (3:1).

Fourthly, the Fed's rate cut expectations did not continue to cool down but instead slightly rebounded. After the release of the inflation data, CME FedWatch showed that the probability of a 25bp rate cut in November increased from 80.3% the day before to 86.9%, and the probability of no rate cut decreased from 19.7% to 13.1%. Although the September inflation data exceeded expectations, it was not as significant as the September non-farm data. Before the release of the September non-farm data, the market expected a 50bp rate cut in November at around 50%, but after the release of the non-farm data, the probability of a 50bp rate cut dropped to 0, and the market has also slightly priced in the possibility of no rate cut in November. Therefore, the impact of inflation data on rate cut expectations has already been minimal.

Moreover, along with the September inflation data, the initial jobless claims for the week ending October 5th surged to 258,000, significantly exceeding the expected 230,000 and reaching the highest point since early August last year, which may have overshadowed the concerns raised by the inflation data, causing rate cut expectations to slightly increase. The increase in initial claims may be influenced by factors such as hurricanes, but it also indicates that the non-farm job gains in October will not be as "impressive" as in September. The task facing the Fed has shifted from prioritizing inflation resistance to balancing full employment and inflation resistance. In the next few months, in the absence of significantly higher-than-expected inflation data, the Fed may still cut rates by 25bp at each of the November-December meetings. The extent of rate cuts next year may also depend on factors such as the election, with Trump's recent electoral prospects improving, and some swing states' polls beginning to surpass Harris, the uncertainty of the November election remains high.

Fifthly, will the process of rising U.S. inflation continue? The risk may not be significant. Among the items that warmed up in August-September, the used car prices leading the CPI have fallen for two consecutive months, and the probability of continued upward movement in the more volatile categories such as airfare and sports event tickets in the supercore inflation is also not high. A monthly increase of about 0.2-0.3% in CPI corresponds to an annual rate of around 3%, and considering that CPI is usually higher than PCE, this means that the current monthly increase in CPI has not significantly deviated from the Fed's 2% inflation target.

Sixthly, what is the outlook for U.S. Treasury bonds and the dollar? There is limited room for further upward movement in U.S. Treasury yields, and the dollar should also pay attention to non-American factors. Recently, the 10-year U.S. Treasury yield has rebounded from around 3.7% in mid-September to over 4%, and after the release of the September inflation data, it once rose to 4.11%, and then fell back to 4.06% at the close. The U.S. dollar index also rebounded from around 100-101 to around 102.8. This is mainly due to the withdrawal of rate cut expectations, with the market's pricing of the Fed's rate cuts for the year, observed from Bloomberg data, decreasing from 74.2bp on September 20th to the latest 44.5bp, retracting by about 30bp.

Is there a risk of further upward movement in long-term U.S. Treasury yields? Unless the Fed's rate cut for November-December is reduced from 50bp to 25bp, which may require subsequent non-farm and inflation data to continue to significantly exceed expectations, the risk may be relatively controllable. The strengthening of the U.S. dollar, in addition to its own withdrawal of rate cut expectations, is also influenced by external factors such as the European and Japanese central banks' dovish stance (in addition to the Bank of Japan's stance, Japan's actual wages have turned negative again). The subsequent trend of the U.S. dollar index may also need to pay attention to the marginal changes in the fundamentals and monetary policy statements of Europe and Japan.