The U.S. Consumer Price Index (CPI) for September showed an unexpected year-on-year increase of 2.4%. This has led to diverging expectations in the market regarding potential interest rate cuts by the Federal Reserve in November. Some analysts believe that a 25 basis point cut remains possible, while others suggest that the Fed may adopt a more cautious approach. As a result, the three major U.S. stock indices saw slight declines. Meanwhile, U.S. Treasury yields rose across the board, with the 10-year Treasury yield surpassing 4% for the first time.

The latest U.S. Consumer Price Index (CPI) data for September indicates that the overall CPI has increased by 2.4% year-on-year, representing a slight deceleration from the previous rate of 2.5%, while exceeding the anticipated figure of 2.3%. The core CPI, which excludes the more volatile food and energy prices, rose by 3.3% year-on-year, marginally surpassing both the forecast and the prior value of 3.2%. This release of data has generated divergent expectations in the market concerning potential interest rate cuts by the Federal Reserve during its November meeting. On one hand, some analysts argue that despite the CPI exceeding expectations, the downward trend remains intact, suggesting that a 25 basis point cut may still be plausible. Conversely, others assert that robust employment data, in conjunction with the unexpected rise in CPI, may compel the Federal Reserve to adopt a more cautious stance regarding rate cuts.

U.S. Stocks Under Pressure

The CPI data exceeding expectations, along with the divergence in rate cut predictions, has led to significant pressure on the U.S. stock market. Following the CPI announcement, the futures of the three major U.S. stock indices experienced an exacerbation of their declines, reflecting increased market volatility. Analysts have pointed out that while strong employment data and the unexpected CPI increase may bolster short-term market confidence, the persistence of inflation and uncertainties surrounding economic growth continue to pose considerable challenges for the stock market. Amid conflicting signals of higher-than-expected inflation and weaker-than-expected employment data, the upward trajectory of U.S. stocks has temporarily stalled. As of October 10, Eastern Time, all three major U.S. indices closed slightly lower, with the S&P 500 down 0.21% at 5,780.05 points; the Nasdaq Composite down 0.05% at 18,282.05 points; and the Dow Jones Industrial Average down 0.14% at 42,454.12 points.

（Source：uSMART HK）

U.S. Treasury Yields Rise

As a benchmark for global asset pricing, fluctuations in U.S. Treasury yields significantly influence global capital markets and asset valuations. Recently, yields across various maturities have risen sharply, particularly the 10-year Treasury yield, which has garnered considerable market attention. Analysts suggest that the unexpected strength in employment and inflation data supports market expectations regarding the fundamentals of the U.S. economy. Furthermore, the upward adjustment of term premiums also plays a critical role in driving Treasury yields higher. The yield on the 10-year Treasury note has surpassed 4% for the first time since August, indicating a shift in market expectations regarding potential Federal Reserve rate cuts.

Analysis of Rate Cut Expectations

Most Wall Street analysts perceive the September CPI data as mixed, reinforcing the expectation that the Federal Reserve may decelerate the pace of rate cuts. While a substantial cut of 50 basis points can be ruled out, the data does not alter the Federal Reserve's assessment that inflation remains on a downward trajectory. Leo He from UBS Securities noted, "In September, the overall and core CPI in the U.S. increased by 18 and 31 basis points month-on-month, respectively, surpassing the market expectations of 0.1% and 0.2%." Ali Jaffery from CIBC Capital Markets added, "Today's data will bolster the expectation that the Federal Reserve is in no hurry to act. While the labor market is slowing, it has not collapsed, and inflation remains slightly above target."

Simultaneously, some analysts advocate for a pause in rate cuts in November. Atlanta Fed President Raphael Bostic explicitly mentioned the possibility of pausing rate cuts in November, expressing openness to either refraining from lowering rates or only implementing a 25 basis point cut, contingent on the evolving economic outlook. "If the data indicate that a pause in rate cuts is warranted, I would be completely open to skipping the next meeting."

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