BlockBeats report: On August 13, the U.S. July CPI rose 0.1% month-over-month and 3.4% year-over-year, with core CPI increasing 2.5% year-over-year. Overall inflation remained moderate, as declining energy prices offset some upward pressures from housing costs. Following the data release, market pricing for a Fed rate hike in September dropped from around 50% to approximately 40%, easing short-term policy pressures.
However, this CPI reading alone is insufficient to directly translate into expectations of easing. The U.S. fiscal deficit continues to widen, with cumulative deficits over the first ten months nearing $1.8 trillion, and the national debt approaching $40 trillion, while interest expenditures continue to rise. Under these conditions, the U.S. must continue issuing large volumes of Treasuries; the recent auction yield for 10-year Treasuries rose to its highest level since 2007, and the 30-year yield neared 5.25%, reflecting elevated long-term funding costs driven by fiscal supply, persistent inflation, and market risk premiums.
Therefore, the key issue in today’s U.S. interest rate market is no longer just whether the Fed will raise rates in September, but whether long-term yields will continue to rise despite the Fed holding rates steady, due to persistent fiscal deficits and increasing Treasury supply. This means that financial conditions may not improve in tandem with a cut in policy rates, and for highly valued, highly leveraged assets, long-term yields remain a significant source of pressure.
In Asia, the yen has once again approached the 160 level, as Japan’s July PPI rose 7.2% year-over-year, boosting expectations of a September rate hike by the Bank of Japan. Further normalization of Japanese monetary policy, combined with a narrowing yield gap between the U.S. and Japan, could impact global capital allocation and yen carry trades.
Gold has regained support due to declining tail risks from rate hikes, a weaker dollar, and renewed fiscal uncertainty, but it is currently closer to a tactical rebound driven by interest rate expectations rather than a simple rate-cut trade. Future Jackson Hole symposium, inflation, and employment data will determine whether gold’s rally can be sustained.
On the other hand, the Russia-Ukraine conflict is reintroducing risks to global energy and food supplies. Russia and Ukraine have recently continued to target Black Sea ports, energy infrastructure, and merchant vessels. With Ukraine currently in its peak grain export season, further disruption to Black Sea shipping could drive up prices for wheat and related food products, complicating an already existing risk of energy-driven inflation.
Overall, the July CPI data reduced pressure on the Fed to raise rates immediately, but did not eliminate the funding cost constraints posed by America’s high deficit, high debt, and elevated long-term yields. Going forward, the core driver of global asset pricing will gradually shift to the tug-of-war between “whether inflation continues to cool” and “whether fiscal spending pushes up long-term interest rates.” For highly volatile assets like Bitcoin, short-term investors should still focus on U.S. dollar liquidity and long-term Treasury yields, rather than solely monitoring the Fed’s policy rate.