Yesterday's CPI blocked the way to a 50bp rate cut. This month, a 25BP rate cut will definitely happen. A 25BP rate cut does not mean that there will definitely be a recession. It just means that the Fed believes that the economy is not cool enough and can be even cooler. They may be right or wrong.

For example, if the rate is cut by 25BP, the unemployment rate will still be 4.2 next month, and the non-farm payrolls will remain relatively stable, then there will be no problem, and the current valuation is almost fast

But I tend to think that a 25BP rate cut will amplify the back-end risks. In other words, my personal opinion is that the economy is already relatively cold now, and if it gets colder, the risks will be amplified. CPI is an index design problem. OER accounts for too large a proportion, which makes CPI easily become a lagging indicator. For example, if house prices start to fall sharply later, CPI may fall back quickly, but by then the economy will have problems. Now, the CPI exceeding expectations does not necessarily mean that inflation is still stubborn, but the proportion of rent in CPI is too large. Today's CPI exceeding expectations does not mean that this month's PCE will also exceed expectations. Maybe CPI exceeds expectations, and PCE continues to fall, then dragging on a slow rate cut will increase the back-end risks.

So if there is a pullback in the interest rate swaps in the next few days, I would consider betting on 5 rate cuts this year or even 7 rate cuts by January next year. The market is now pricing in 4.2 rate cuts this year and 5.8 rate cuts by January next year (which has fallen a bit from the previous few days).