CoinTelegraph reports—CPI met expectations, but breakdown reveals a false alarm; has the September rate hike warning been largely lifted?
CoinTelegraph APP reports — During the European and U.S. trading session on Wednesday, August 12, the much-anticipated U.S. July CPI inflation data was officially released.
In this pivotal report that directly determines the direction of the Federal Reserve's next monetary policy meeting, the overall CPI growth rate for July declined as expected to 3.4%, while core CPI further eased to 2.5%, aligning with market expectations. This surprised traders who had prematurely bet on easing inflation, causing gold prices to plunge. However, as the component details were analyzed, gold regained its upward momentum.
Gold prices rose $10 in advance before quickly dropping 1%, then rebounding to a new intraday high; currently, Spot Gold is trading at 4434, up 1.50% on the day.
Amid prior concerns over labor market stagnation—with July’s non-farm payrolls showing a net loss of 23,000 jobs—and hawkish clouds looming as Boston Fed President Susan Collins warned that a September rate hike cannot be ruled out, this inflation report, which showed no deterioration and extremely mild monthly momentum, has undoubtedly delivered a powerful dose of reassurance to financial markets gripped by anxieties over stagflation and tightening.
More importantly, a detailed breakdown of the sub-data reveals that the long-standing inflation "anchor" troubling the Federal Reserve is now experiencing meaningful loosening, significantly reducing the necessity for an interest rate hike in September.
The newly released CPI breakdown data reveals a clear "dual-wheel cooling" pattern:
Based on the published data details, July's CPI exhibited a clearly defined pattern of “overall mild, with divergent components”:
Overall and core inflation: In July, the year-over-year growth rate of overall CPI slightly declined by 0.1 percentage point from 3.5% last month to 3.4%, effectively halting the rebound that began in the second quarter; core CPI also steadily decreased to 2.5%, reaching a new low for the past three years.
From a monthly change perspective, both the overall and core CPI rose by only 0.1% and 0.2% respectively, showing extremely mild growth, which translates to an annualized rate within the Fed’s acceptable target range.
Component drivers (energy and housing): Within the breakdown, energy CPI emerged as the largest "pressure relief valve," with its year-over-year growth rate, though still elevated, narrowing significantly by 1.0 percentage point from 15.7% last month to 14.7%; as the heaviest-weighted "anchor," housing CPI slowed further from 3.3% to 3.2%, indicating that the lagged dampening effect of high interest rates on the rental market is accelerating.
Core goods segment: The year-over-year decline in CPI for used cars widened to -1.9%, while the year-over-year CPI for new cars remained flat at 0.5%, indicating that the core goods segment as a whole continues to exhibit deflationary and stable conditions, with supply-side cost pass-through not significantly pressuring overall inflation.
During the second quarter, the Trump administration's military action against Iran reduced oil shipments through the Strait of Hormuz, pushing the U.S. CPI to a three-year high of 4.2% in May.
However, the correction trend in June crude oil continued into July, with the annual energy CPI rate dropping sharply from 15.7% to 14.7%. Although the situation in the Middle East has not fully stabilized, the阶段性 cooling of energy commodities became the primary force driving down the overall CPI.
Housing CPI, which accounts for over 40% of core CPI, slowed further from 3.3% to 3.2%.
The synchronized decline in CPI and housing CPI growth indicates that the quality of the core CPI growth decline is still good. (For example, if housing CPI growth falls sharply, such as to only 2.0%, while overall CPI growth declines year-over-year to 3.2%, it becomes difficult to determine whether the CPI slowdown is due to core factors or primarily driven by housing.)
This confirms that the lagging dampening effect of high interest rates on the rental market is finally accelerating.
Given the high weight of housing items, the slowdown in their growth has provided the strongest foundation for the decline in overall core inflation.
This is a critical logical loop: amid slowing year-over-year housing CPI growth and ongoing deflation in core goods (used cars -1.9%), core CPI rose only slightly by 0.2% month-over-month.
This reverse proof shows that the monthly momentum of "super core inflation" (core services CPI excluding housing), which Fed Chair Walsh and hawkish officials feared most, remains low, and labor-intensive services have not experienced a secondary price rebound triggered by wage increases.
Although the July data provided some relief to the market, it is crucial not to equate "declining inflation" with "crisis resolved."
As President Collins emphasized in an interview at the Federal Reserve Bank of Boston, U.S. inflation metrics have failed to reach the Fed’s 2% policy target for five consecutive years.
The cumulative effect of this “long-term high inflation” is causing profound harm to the base of the U.S. economy:
The survival struggles of ordinary people: Collin admits that financial pressure on middle- and low-income households has become extremely severe, with the vast majority of families struggling to balance their budgets.
The wealthy continue to spend strongly, supported by rising asset prices (the AI boom and the wealth effect from U.S. stocks), but low-income households are being squeezed by high prices, even forcing major discount retailers to lower food prices to attract customers back.
Structural stickiness remains strong: current inflation is not a one-time shock, but rather the result of multiple reinforcing factors—tariff costs being passed on, soaring electricity and chip expenses due to AI infrastructure, surging defense spending, and labor shortages caused by immigration policy restrictions.
These structural factors will make inflation highly persistent around 3%.
The stable release of the July CPI data triggered extensive commentary from major Wall Street financial institutions.
While major institutions have confirmed a rapid downward revision of the probability of a September rate hike, they still exhibit significant divergence regarding the medium- to long-term inflation outlook and the Fed’s policy space:
Goldman Sachs' Chief U.S. Economist noted that the monthly core CPI increase of 0.2% is fully consistent with the Fed's desired path of bringing inflation back to 2%.
Combined with the recent cooling of the labor market (a non-farm payroll decrease of 23,000 in July), the July CPI report has officially stripped hawkish policymakers of their “data justification” for raising rates in September.
Goldman Sachs expects the Federal Reserve to hold the benchmark interest rate steady in September, shifting its policy focus to assessing the true weakness in the labor market.
Morgan Stanley’s analysis team cautions the market against excessive optimism: although housing CPI year-over-year declined to 3.2%, significantly easing overall pressure, services prices excluding housing and energy (super core inflation) remain supported by healthcare, insurance, and labor costs.
Morgan Stanley believes that the current decline in inflation is largely a "one-off breakthrough in commodities and housing," and that structural inflationary pressures remain. The Fed has no chance of restarting its rate-cutting cycle in the near term.
BofA Securities: The bond market will replace the Fed as the "judge"
Bank of America strategists addressed the "concerns over U.S. Treasury yields" highlighted in the Economic Compass report.
Bank of America believes that even if CPI falls to 3.4%, it will be difficult to stop the 10-year U.S. Treasury yield from racing toward 5%.
Due to the continued expansion of the U.S. budget deficit and surging spending on defense and AI infrastructure, bond market investors are demanding higher term premiums. If the Fed shows signs of dovishness due to weakening employment, a rebound in long-term Treasury yields could accomplish the Fed’s difficult task of tightening financial conditions.
BlackRock Intelligence states that inflation consistently above 2% for five years has fundamentally changed the behavior of businesses and consumers.
Due to import tariff costs being passed down the supply chain and geopolitical tensions in the Middle East increasing supply chain friction costs, an inflation rate of around 3% may become the new normal for the U.S. economy. Fed Chair Walsh will find it difficult to bring inflation fully back to 2% without damaging employment, meaning interest rates will remain at relatively high levels for longer (Higher for Longer).
This in-line CPI report, along with institutional interpretations, has directly reshaped the power dynamics and policy roadmap within the Federal Reserve.
At last month's FOMC meeting, a rare split emerged within the Fed—Presidents Harker (Cleveland), Logan (Dallas), and Kashkari (Minneapolis) jointly voted against the decision, advocating for an immediate rate hike.
Subsequently, officials including Collins, Cook, Waller, and Vice Chair Williams signaled a hawkish stance, stating that if inflation proves more persistent than expected in July, they could support a 25-basis-point rate hike as early as September.
However, the stable print of the July CPI, coupled with a modest monthly core CPI increase of 0.2%, directly removed the hawkish camp’s data justification for an urgent rate hike in September.
New Federal Reserve Chair Kevin Warsh's dilemma:
The dual mandate is being torn apart: in July, non-farm payrolls decreased by 23,000 net jobs, and the three-month average of new hires halved compared to the first quarter (dropping to 20,000), while the labor force participation rate fell to a five-year low. Raising rates aggressively due to high inflation could easily push the fragile labor market into recession; yet, cutting rates prematurely in response to weak employment would undermine the Fed’s hard-earned credibility in controlling inflation.
With July CPI showing no deterioration, derivatives markets have quickly lowered the probability of a 25 bps rate hike in September to 38.1%, and the majority of institutions now expect the Fed to hold rates steady at the September FOMC meeting.
(CME FedWatch interest rate futures, source: CME Group)
The smooth release of the July CPI data allowed the Fed to temporarily avoid the cliff of being forced to raise rates. However, inflation still has a long "final mile" to go before reaching the 2% target.
The market's next focus will shift entirely to the Jackson Hole central bank symposium later this month.
Facing complex political pressures, a deeply divided Federal Reserve Board, and persistently high long-term Treasury yields, Chair Walsh needs to re-anchor the Fed’s reaction function with a speech as clear and decisive as Powell’s in 2022.
For the Federal Reserve, there are signs that inflation is cooling, but this five-year battle against inflation is far from over.
Spot gold briefly consolidated near the upper boundary of the range before continuing its upward movement, without waiting for a pullback to the 5-day moving average; the overall trend remains strongly bullish, with resistance at the key psychological level of 4500 and the 200-day moving average, and support at the upper boundary of the range at 4431.
(Spot gold daily chart, source: E-HuiTong)
At 21:13 Beijing Time, spot gold is trading at $4,424 per ounce.
In this pivotal report that directly determines the direction of the Federal Reserve's next monetary policy meeting, the overall CPI growth rate for July declined as expected to 3.4%, while core CPI further eased to 2.5%, aligning with market expectations. This surprised traders who had prematurely bet on easing inflation, causing gold prices to plunge. However, as the component details were analyzed, gold regained its upward momentum.
Gold prices rose $10 in advance before quickly dropping 1%, then rebounding to a new intraday high; currently, Spot Gold is trading at 4434, up 1.50% on the day.
Amid prior concerns over labor market stagnation—with July’s non-farm payrolls showing a net loss of 23,000 jobs—and hawkish clouds looming as Boston Fed President Susan Collins warned that a September rate hike cannot be ruled out, this inflation report, which showed no deterioration and extremely mild monthly momentum, has undoubtedly delivered a powerful dose of reassurance to financial markets gripped by anxieties over stagflation and tightening.
More importantly, a detailed breakdown of the sub-data reveals that the long-standing inflation "anchor" troubling the Federal Reserve is now experiencing meaningful loosening, significantly reducing the necessity for an interest rate hike in September.
Comprehensive Data Breakdown: Two Key Factors Lower the Core Inflation Rate
The newly released CPI breakdown data reveals a clear "dual-wheel cooling" pattern:
Based on the published data details, July's CPI exhibited a clearly defined pattern of “overall mild, with divergent components”:
Overall and core inflation: In July, the year-over-year growth rate of overall CPI slightly declined by 0.1 percentage point from 3.5% last month to 3.4%, effectively halting the rebound that began in the second quarter; core CPI also steadily decreased to 2.5%, reaching a new low for the past three years.
From a monthly change perspective, both the overall and core CPI rose by only 0.1% and 0.2% respectively, showing extremely mild growth, which translates to an annualized rate within the Fed’s acceptable target range.
Component drivers (energy and housing): Within the breakdown, energy CPI emerged as the largest "pressure relief valve," with its year-over-year growth rate, though still elevated, narrowing significantly by 1.0 percentage point from 15.7% last month to 14.7%; as the heaviest-weighted "anchor," housing CPI slowed further from 3.3% to 3.2%, indicating that the lagged dampening effect of high interest rates on the rental market is accelerating.
Core goods segment: The year-over-year decline in CPI for used cars widened to -1.9%, while the year-over-year CPI for new cars remained flat at 0.5%, indicating that the core goods segment as a whole continues to exhibit deflationary and stable conditions, with supply-side cost pass-through not significantly pressuring overall inflation.
Energy items become a "pressure relief valve" for inflation.
During the second quarter, the Trump administration's military action against Iran reduced oil shipments through the Strait of Hormuz, pushing the U.S. CPI to a three-year high of 4.2% in May.
However, the correction trend in June crude oil continued into July, with the annual energy CPI rate dropping sharply from 15.7% to 14.7%. Although the situation in the Middle East has not fully stabilized, the阶段性 cooling of energy commodities became the primary force driving down the overall CPI.
The "anchor" of housing inflation is accelerating its loosening
Housing CPI, which accounts for over 40% of core CPI, slowed further from 3.3% to 3.2%.
The synchronized decline in CPI and housing CPI growth indicates that the quality of the core CPI growth decline is still good. (For example, if housing CPI growth falls sharply, such as to only 2.0%, while overall CPI growth declines year-over-year to 3.2%, it becomes difficult to determine whether the CPI slowdown is due to core factors or primarily driven by housing.)
This confirms that the lagging dampening effect of high interest rates on the rental market is finally accelerating.
Given the high weight of housing items, the slowdown in their growth has provided the strongest foundation for the decline in overall core inflation.
Reverse-engineering "super core inflation": wage pass-through in services is under control
This is a critical logical loop: amid slowing year-over-year housing CPI growth and ongoing deflation in core goods (used cars -1.9%), core CPI rose only slightly by 0.2% month-over-month.
This reverse proof shows that the monthly momentum of "super core inflation" (core services CPI excluding housing), which Fed Chair Walsh and hawkish officials feared most, remains low, and labor-intensive services have not experienced a secondary price rebound triggered by wage increases.
Real-world concerns: Survival challenges and five years of inflationary pressure
Although the July data provided some relief to the market, it is crucial not to equate "declining inflation" with "crisis resolved."
As President Collins emphasized in an interview at the Federal Reserve Bank of Boston, U.S. inflation metrics have failed to reach the Fed’s 2% policy target for five consecutive years.
The cumulative effect of this “long-term high inflation” is causing profound harm to the base of the U.S. economy:
The survival struggles of ordinary people: Collin admits that financial pressure on middle- and low-income households has become extremely severe, with the vast majority of families struggling to balance their budgets.
The wealthy continue to spend strongly, supported by rising asset prices (the AI boom and the wealth effect from U.S. stocks), but low-income households are being squeezed by high prices, even forcing major discount retailers to lower food prices to attract customers back.
Structural stickiness remains strong: current inflation is not a one-time shock, but rather the result of multiple reinforcing factors—tariff costs being passed on, soaring electricity and chip expenses due to AI infrastructure, surging defense spending, and labor shortages caused by immigration policy restrictions.
These structural factors will make inflation highly persistent around 3%.
Institutional view: Rate hike alarm drops sharply, but inflation persistence and bond market concerns remain
The stable release of the July CPI data triggered extensive commentary from major Wall Street financial institutions.
While major institutions have confirmed a rapid downward revision of the probability of a September rate hike, they still exhibit significant divergence regarding the medium- to long-term inflation outlook and the Fed’s policy space:
Goldman Sachs' Chief U.S. Economist noted that the monthly core CPI increase of 0.2% is fully consistent with the Fed's desired path of bringing inflation back to 2%.
Combined with the recent cooling of the labor market (a non-farm payroll decrease of 23,000 in July), the July CPI report has officially stripped hawkish policymakers of their “data justification” for raising rates in September.
Goldman Sachs expects the Federal Reserve to hold the benchmark interest rate steady in September, shifting its policy focus to assessing the true weakness in the labor market.
Morgan Stanley’s analysis team cautions the market against excessive optimism: although housing CPI year-over-year declined to 3.2%, significantly easing overall pressure, services prices excluding housing and energy (super core inflation) remain supported by healthcare, insurance, and labor costs.
Morgan Stanley believes that the current decline in inflation is largely a "one-off breakthrough in commodities and housing," and that structural inflationary pressures remain. The Fed has no chance of restarting its rate-cutting cycle in the near term.
BofA Securities: The bond market will replace the Fed as the "judge"
Bank of America strategists addressed the "concerns over U.S. Treasury yields" highlighted in the Economic Compass report.
Bank of America believes that even if CPI falls to 3.4%, it will be difficult to stop the 10-year U.S. Treasury yield from racing toward 5%.
Due to the continued expansion of the U.S. budget deficit and surging spending on defense and AI infrastructure, bond market investors are demanding higher term premiums. If the Fed shows signs of dovishness due to weakening employment, a rebound in long-term Treasury yields could accomplish the Fed’s difficult task of tightening financial conditions.
BlackRock Intelligence states that inflation consistently above 2% for five years has fundamentally changed the behavior of businesses and consumers.
Due to import tariff costs being passed down the supply chain and geopolitical tensions in the Middle East increasing supply chain friction costs, an inflation rate of around 3% may become the new normal for the U.S. economy. Fed Chair Walsh will find it difficult to bring inflation fully back to 2% without damaging employment, meaning interest rates will remain at relatively high levels for longer (Higher for Longer).
The Fed's Dilemma: Walsh's Expression Dilemma
This in-line CPI report, along with institutional interpretations, has directly reshaped the power dynamics and policy roadmap within the Federal Reserve.
At last month's FOMC meeting, a rare split emerged within the Fed—Presidents Harker (Cleveland), Logan (Dallas), and Kashkari (Minneapolis) jointly voted against the decision, advocating for an immediate rate hike.
Subsequently, officials including Collins, Cook, Waller, and Vice Chair Williams signaled a hawkish stance, stating that if inflation proves more persistent than expected in July, they could support a 25-basis-point rate hike as early as September.
However, the stable print of the July CPI, coupled with a modest monthly core CPI increase of 0.2%, directly removed the hawkish camp’s data justification for an urgent rate hike in September.
New Federal Reserve Chair Kevin Warsh's dilemma:
The dual mandate is being torn apart: in July, non-farm payrolls decreased by 23,000 net jobs, and the three-month average of new hires halved compared to the first quarter (dropping to 20,000), while the labor force participation rate fell to a five-year low. Raising rates aggressively due to high inflation could easily push the fragile labor market into recession; yet, cutting rates prematurely in response to weak employment would undermine the Fed’s hard-earned credibility in controlling inflation.
With July CPI showing no deterioration, derivatives markets have quickly lowered the probability of a 25 bps rate hike in September to 38.1%, and the majority of institutions now expect the Fed to hold rates steady at the September FOMC meeting.
(CME FedWatch interest rate futures, source: CME Group)
Summary and Technical Analysis:
The smooth release of the July CPI data allowed the Fed to temporarily avoid the cliff of being forced to raise rates. However, inflation still has a long "final mile" to go before reaching the 2% target.
The market's next focus will shift entirely to the Jackson Hole central bank symposium later this month.
Facing complex political pressures, a deeply divided Federal Reserve Board, and persistently high long-term Treasury yields, Chair Walsh needs to re-anchor the Fed’s reaction function with a speech as clear and decisive as Powell’s in 2022.
For the Federal Reserve, there are signs that inflation is cooling, but this five-year battle against inflation is far from over.
Spot gold briefly consolidated near the upper boundary of the range before continuing its upward movement, without waiting for a pullback to the 5-day moving average; the overall trend remains strongly bullish, with resistance at the key psychological level of 4500 and the 200-day moving average, and support at the upper boundary of the range at 4431.
(Spot gold daily chart, source: E-HuiTong)
At 21:13 Beijing Time, spot gold is trading at $4,424 per ounce.