According to data released by the USA Labor Statistics Bureau on Thursday, the Producer Price Index (the so-called "PPI") for February in the USA remained unchanged month-on-month, after the PPI increase for January was revised upward from 0.4% to 0.6%. The so-called "core PPI," excluding food and Energy, saw a decline below the month-on-month benchmark for the first time since last July. However, the PPI data report showed that USA Commodity prices unexpectedly surged, and the calculations of the core PCE components suggest that the core PCE to be released at the end of the month may not be as optimistic as the market expects.

The USA's February PPI was 0% month-on-month, the smallest increase since last July; the expected value was 0.3%, and the previous value was 0.6%. However, despite the overall PPI remaining unchanged and the core PPI declining month-on-month, the data related to the core Personal Consumption Expenditure Price Index (the so-called "core PCE"), which is the preferred inflation measure by Federal Reserve officials, still appears to be less optimistic. The core PCE in February may still be significantly above the 2% target.

This includes an unexpected increase of 1% in Hospital inpatient care costs and an investment portfolio management cost increase of 0.5% that exceeded expectations. This also means that the market's anticipated "Federal Reserve Put Options" still has to closely watch the cooling trend of the core PCE.

CPI statistical report released by the American Labor Statistics Bureau on Wednesday shows that although consumer prices (overall CPI) only rose 0.2% month-on-month last month, marking the smallest increase since October of last year, some details of the CPI also indicate that the core PCE price index may be higher than last month's statistical data when the core PCE number is released later this month.

On the core PPI data front, the core PPI in the USA increased by 3.4% year-on-year in February, falling short of economists' general expectation of 3.5%, and significantly cooling from the previous value of 3.6%; the core PPI showed a month-on-month decline of 0.1%, far below the general expectation of economists for a month-on-month increase of 0.3%, and compared to the previous month-on-month increase of 0.5%, it indicates a substantial cooling. However, service prices excluding trade, transportation, and warehousing unexpectedly rose by 0.2% month-on-month.

Additionally, President Donald Trump recently announced a comprehensive tariff measure targeting the USA's largest trading partner, which is expected to lead to an increase in the prices of imported goods in the coming months.

Overall, the details of the PPI data released on Thursday evening Beijing time showed: food prices increased by 1.7% month-on-month, marking the largest increase in three months; Energy prices decreased by 1.2%; excluding food and energy, commodity prices increased by 0.4% month-on-month, unexpectedly recording the largest increase since early 2023; service prices decreased by 0.2%, reflecting a contraction in the profit margins of wholesalers and retailers.

Despite the producer's overall price index being flat, the details of each piece of data showed a mixed performance. This could indicate that the upcoming PCE price index may be stronger than expected and last month's statistics, increasing the uncertainty of the Federal Reserve's monetary policy decisions.

Additionally, President Trump recently announced broad tariff measures against the USA's major trading partners, which could further increase the prices of imported goods in the USA over the next few months, creating additional inflationary pressure.

The market's expectation of "Federal Reserve Put Options" is still quite a distance from the strike price.

Although the PPI remained flat in February, indicating a temporary easing of inflationary pressures, rising service costs and potential inflationary pressures from trade policies may make the Federal Reserve more cautious when adjusting monetary policy. Therefore, the market should not overly rely on the expectations of "Federal Reserve Put Options", and should closely monitor the upcoming PCE price index and other economic indicators to determine the next steps of the Federal Reserve.

After the release of the latest PPI data, the market's bets on the Federal Reserve's interest rate cuts did not change significantly, CME's "Federal Reserve Watch Tool" shows that the interest rateFutures Tradingtraders still bet that the Federal Reserve will cut rates three times this year, by 25 basis points each time, with traders betting that the first rate cut will be in June, followed possibly by September and December.

Recently, Goldman Sachs, once viewed as an "optimist" on Wall Street, joined the ranks of those downgrading the USA's economic growth forecasts, reducing the 2025 USA GDP growth expectation from 2.4% to 1.7%, marking the first time in over two years that the bank has lowered its GDP forecast below the general expectation level.

At the same time, Goldman Sachs raised its inflation expectations for the USA, estimating that by the end of this year, the Federal Reserve's preferred inflation indicator—the core PCE price index—will reach 3%, higher than the previously predicted mid-term level of 2%.

There is a market view that Goldman Sachs' core PCE expectation shift marks an acceleration of concerns about the risk of 'stagflation' in the USA, with the so-called 'Fed Put' strike price seemingly being bottomless.

The so-called "Fed Put", also known as the "Powell Put" or "Greenspan Put", is not a real financial derivative, but rather a market metaphor. This Concept refers to the idea that when the American Financial market (especially the stock market) experiences significant declines and the economic outlook worsens, the Fed typically intervenes, such as by lowering Interest Rates, releasing liquidity, or providing Other easing policies to support the market and prevent further declines in the stock market.

Therefore, this implied supportive behavior is metaphorically likened to a "Put Option," where investors believe that the Federal Reserve will intervene when the market deteriorates to a certain extent, providing a degree of protection.

However, in the context of rising expectations for 'stagflation' in the USA, the path from economic activity slowdown to interest rate cuts is not a straight line; if inflation remains mild, especially if core PCE does not significantly cool down, investors and Federal Reserve officials will have to continue to monitor whether the downside risks to economic growth will materialize. Despite several confidence indicators showing signs of an economic downturn in the USA, Commodity and service inflation remains high, and the potential inflationary pressure brought by Trump's tariff policies may limit the Federal Reserve's policy space.

The interaction between the Federal Reserve and the Trump administration increasingly resembles a 'repeated game'. From the perspective of game theory, credibility is paramount. If there are clear signs of economic recession, the Federal Reserve will certainly cut interest rates rapidly, but the more difficult situation is when the USA's economic growth slows to below trend levels (but still positive growth), while inflation remains above the Federal Reserve's 2% target. In such a case, lowering interest rates might convey the message that the Federal Reserve does not prioritize the inflation target.

Editor/ping