Before tonight’s CPI data lands, we can, from the perspective of the Federal Reserve’s policy cost, break down the most likely outcomes
My core judgment is: the probability that CPI will deviate significantly from market expectations is low. Most likely, it will land within the expected range—a fairly neutral performance report.
First, consider the upside risk: the current high oil prices are clearly supporting inflation. If CPI significantly exceeds expectations, market pricing for further rate hikes would be quickly pushed up. Given today’s fragile market sentiment, this would very easily trigger a broad pullback in risk assets. That would run counter to the Fed’s goal of tightening policy in a steady, orderly manner, so the probability of this scenario is not high.
Next, consider the downside constraint: if CPI falls far below expectations, while it would directly dispel expectations of rate hikes, it would also raise questions in the market about the objectivity of the data—eroding the Fed’s policy credibility built up over the years. It could even threaten stability in the U.S. Treasury market. The long-term costs would far outweigh the short-term benefits, so it’s clearly not the optimal choice.
For the Federal Reserve, a safer course of action is to: first release inflation data that meets expectations to stabilize current policy expectations. If later it wants to slow down rate hikes, it should gradually guide expectations by controlling energy prices and emphasizing the temporary nature of energy shocks, rather than trying to manipulate a single data release.
Overall, tonight’s CPI is more likely to land smoothly and won’t bring too strong an unexpected shock to the market. Going forward, we can focus on observing the marginal changes in rate-hike expectations after the data release, as well as the impact of the oil price trend on the mid-term inflation narrative.
#CPI数据来袭能否触发9月加息
My core judgment is: the probability that CPI will deviate significantly from market expectations is low. Most likely, it will land within the expected range—a fairly neutral performance report.
First, consider the upside risk: the current high oil prices are clearly supporting inflation. If CPI significantly exceeds expectations, market pricing for further rate hikes would be quickly pushed up. Given today’s fragile market sentiment, this would very easily trigger a broad pullback in risk assets. That would run counter to the Fed’s goal of tightening policy in a steady, orderly manner, so the probability of this scenario is not high.
Next, consider the downside constraint: if CPI falls far below expectations, while it would directly dispel expectations of rate hikes, it would also raise questions in the market about the objectivity of the data—eroding the Fed’s policy credibility built up over the years. It could even threaten stability in the U.S. Treasury market. The long-term costs would far outweigh the short-term benefits, so it’s clearly not the optimal choice.
For the Federal Reserve, a safer course of action is to: first release inflation data that meets expectations to stabilize current policy expectations. If later it wants to slow down rate hikes, it should gradually guide expectations by controlling energy prices and emphasizing the temporary nature of energy shocks, rather than trying to manipulate a single data release.
Overall, tonight’s CPI is more likely to land smoothly and won’t bring too strong an unexpected shock to the market. Going forward, we can focus on observing the marginal changes in rate-hike expectations after the data release, as well as the impact of the oil price trend on the mid-term inflation narrative.
#CPI数据来袭能否触发9月加息