Analysis of the Abnormal Post-CPI Market Movement: The Standoff Between Short-End Hawkishness and Long-End Pullback
After the CPI data was released, market expectations for a September rate hike surged from 68% to 90%, which is typically a strongly hawkish signal. However, the price action of Bitcoin and gold has been extremely counterintuitive: after a brief dip that pierced downward, both rebounded sharply. Bitcoin even rebounded by nearly $2,000, and gold also saw a strong repair.
This abnormal move cannot be simply explained by “bad news fully out is good news.” Because rate-hike expectations are still heating up, and the negative factors have not disappeared. The real key lies in the bifurcation of the rates market.
After the data release, short-end yields continued to rise, with the 2-year Treasury yield directly reacting to the rate-hike expectations. But the long-end yields fell clearly after spiking: the 10-year Treasury yield returned to around 4.95%. This suggests the market is indeed pricing a more hawkish Fed—but that hawkish sentiment is concentrated only in the short end and has not evolved into a repricing that long-run inflation and long-term yields are spiraling out of control.
This is a crucial shift: the market starts to believe that while the near-term inflation pressure may need the Fed to suppress it through one or two more hikes, it does not necessarily mean that high rates must be maintained at an ever-increasing level over the coming years. Especially given that current inflation has a pronounced energy component: much of the August CPI increase came from gasoline and energy prices affected by the Middle East situation.
Therefore, the logic the market is trading now is: near-term inflation can be tolerated, and one or two additional rate hikes in the short term are acceptable. As long as long-term inflation expectations do not run out of control, and long-term yields do not keep soaring wildly, the most dangerous scenario will not play out.
After the CPI data was released, market expectations for a September rate hike surged from 68% to 90%, which is typically a strongly hawkish signal. However, the price action of Bitcoin and gold has been extremely counterintuitive: after a brief dip that pierced downward, both rebounded sharply. Bitcoin even rebounded by nearly $2,000, and gold also saw a strong repair.
This abnormal move cannot be simply explained by “bad news fully out is good news.” Because rate-hike expectations are still heating up, and the negative factors have not disappeared. The real key lies in the bifurcation of the rates market.
After the data release, short-end yields continued to rise, with the 2-year Treasury yield directly reacting to the rate-hike expectations. But the long-end yields fell clearly after spiking: the 10-year Treasury yield returned to around 4.95%. This suggests the market is indeed pricing a more hawkish Fed—but that hawkish sentiment is concentrated only in the short end and has not evolved into a repricing that long-run inflation and long-term yields are spiraling out of control.
This is a crucial shift: the market starts to believe that while the near-term inflation pressure may need the Fed to suppress it through one or two more hikes, it does not necessarily mean that high rates must be maintained at an ever-increasing level over the coming years. Especially given that current inflation has a pronounced energy component: much of the August CPI increase came from gasoline and energy prices affected by the Middle East situation.
Therefore, the logic the market is trading now is: near-term inflation can be tolerated, and one or two additional rate hikes in the short term are acceptable. As long as long-term inflation expectations do not run out of control, and long-term yields do not keep soaring wildly, the most dangerous scenario will not play out.