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On Wednesday local time, the United States released a highly anticipated inflation report, with the year-on-year growth rate of the Consumer Price Index (CPI) in July hitting the lowest level in nearly three years. It is worth noting thatAfter the data was released, the market's pricing of the Fed's September policy shift remained almost unchanged, but the balance has shifted towards the traditional 25 basis points.

Affected by this, the US dollar index rebounded 0.4% from its intraday low, and COMEX gold plunged more than 1%. Next, how Federal Reserve Chairman Powell comments on recent data next week will become the focus.

CPI report has limited highlights

The U.S. Bureau of Labor Statistics said on Wednesday that the U.S. CPI rose 0.2% month-on-month in July, 0.3 percentage points faster than in June, and increased 2.9% year-on-year, the lowest since March 2021. Excluding the more volatile food and energy components, the core CPI grew 3.2%, up 0.2% month-on-month, in line with expectations.

Boris Schlossberg, macro strategist at BK Asset Management, said in an interview with China Business News that after experiencing the recession panic in early August, the market has paid more attention to growth indicators. Therefore, for price indicators, meeting expectations or slightly better than expected will not significantly affect the pricing of interest rate cuts, but if they rise unexpectedly, it will cause market concerns. Today's situation belongs to the former.

It is worth mentioning that the monthly rent rate has risen again, which has brought uncertainty to the outlook for prices. David Doyle, head of Canadian economics at Macquarie, wrote, "This report is not as favorable for anti-inflation as the one in June, but overall, the report further reinforces the fact that the trend remains unchanged. This provides the Federal Reserve with more evidence that the rebound in potential inflation that occurred in the first quarter was temporary and has reversed direction."

Before the Fed's decision next month, two more price data will be submitted to the FOMC, namely the Fed's preferred July PCE and August CPI reports. The Cleveland Fed's inflation model Inflation Nowcasting shows that the core inflation rate will continue to face upward pressure on the monthly rate, and the pace of moving toward the 2% medium-term target may slow down.

Lauren Henderson, an economist at brokerage firm Stifel Financial, believes that there are some concerns in the latest CPI report and that more data is needed. If there are upside risks in the future, it is possible that the Fed will cut interest rates in the fourth quarter.

Paul Ashworth, chief economist at Capital Economics, said: "July's CPI report was arguably slightly encouraging, but at the same time it did not suggest that price pressures were falling sharply enough to justify a larger 50 basis point rate cut."

How Powell paves the way for rate cuts

According to the schedule, the Jackson Hole Global Central Bank Symposium will be held from next Thursday to next Saturday. Historically, the Federal Reserve has repeatedly used this occasion to release important policy framework changes or position signals.

Wall Street generally predicts that after sending a signal at the beginning of the month, Federal Reserve Chairman Powell will prepare for a rate cut in September in his speech. In a note to clients, Evercore ISI Vice Chairman Krishna Guha said that Powell will set the tone for the upcoming monetary easing policy by preferring "active" rather than "passive" rate cuts.

The July non-farm payrolls report sparked concerns about a recession, and the next report will be released on September 6. Guha said: "This is a Fed that prioritizes labor data, not inflation data, and the upcoming labor data will determine the extent of the Fed's rate cuts."

according toChicago Mercantile ExchangeAccording to FedWatch pricing, investors have basically given up betting on a 50 basis point rate cut in September, and the probability of a significant rate cut is currently about 40%. In an interview with the media on Wednesday, former Kansas Fed President George also believed that the traditional 25 basis point model is the most appropriate option at this stage.

Scott Helfstein, head of investment strategy at Global X, predicts that with CPI returning below 3% for the first time in three years, Powell may declare victory at Jackson Hole and try to convince the market that there will be a 25 basis point rate cut in September.

Guha predicted the impact of the latest non-agricultural data in the report. If the August employment report is better than last month, the Fed will cut interest rates by 25 basis points in three consecutive meetings this year, but if the August employment data continues this new weak trend, the Fed may cut interest rates by 50 basis points twice in September and November; if the data shows that the labor market is collapsing, the Fed will cut 200-250 basis points before December.