How much did the Fed cut interest rates in September? Last week's non-farm employment data was mixed and did not provide a clear answer. The market is now focused on the upcoming release of CPI data.

At 20:30 on Wednesday Beijing time, the US Bureau of Labor Statistics will release CPI data for August. Currently, the market expects that the month-on-month increase in US CPI and core CPI in August will both be 0.2%, the same as last month.

In terms of year-on-year growth, the market expects that CPI in August will increase by 2.5%, down from the previous value of 2.9%, and core CPI will stay unchanged at 3.2%, only one-third of what it was two years ago.

Currently, pricing in the futures market indicates a 66% probability of a 25 basis point rate cut by the Fed on September 18, and a 34% probability of a 50 basis point rate cut. Analysts believe that CPI meeting expectations will solidify the expectation of a 25 basis point rate cut, while any unexpected cooling will increase investor bets on a 50 basis point rate cut.

Citigroup economists Veronica Clark and Andrew Hollenhorst stated in a data preview on September 9 that in terms of relevance to Fed policy decisions, inflation data is quickly giving way to labor market data. However, since there is no conclusive evidence from the August employment report, August CPI data may have an impact.

"Given the increasing downside risks to the labor market and economic activity, weak CPI data may suggest a lower threshold for a larger rate cut."

The market still has expectations for a large 50 basis point rate cut, although it may not happen in September, and even before the November 5th US election.

The market expects the Federal Reserve to cut interest rates by 150 basis points before the end of January next year. To achieve this level of easing, the Federal Reserve must implement at least 50 basis points of rate cuts in two of its four meetings during this period.

August CPI: Rental prices are expected to return to a downward trend, with clothing prices being the biggest variable.

Analysts believe that rental inflation in August is expected to be lower than in July, as July saw an increase due to abnormal growth in the western region.

Aichi Amemiya, an economist at Nomura Securities, said that the All Transaction Rent Index (ATRR) from the US Bureau of Labor Statistics is the most reliable leading indicator, indicating that official rental inflation is declining. In addition, the supply of rental apartments remains high, so the potential trend of rental inflation is unlikely to accelerate in the near term.

If rental inflation decreases, this will help offset the rebound in other service categories (such as medical care and airfares) after an abnormal decline in July.

Inflation in auto insurance is expected to slow down. In the past two years, inflation in auto insurance has been a major driving factor of inflation in the US service sector, but there are signs that insurance providers may slow down the pace of price increases in the coming months.

Analysts at Morgan Stanley point out that insurance premium applications in July appear to have started to decelerate, and this trend is expected to continue. CPI for auto insurance will show a more significant slowdown by the end of the year.

Clothing prices may become an important variable affecting August CPI. In July, clothing prices experienced the largest decline this year, and analysts have different opinions on whether prices will continue to decrease in August. This means that any significant fluctuations may have an impact on the overall inflation reading.

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