The CPI from the night before and the PPI from last night are just right to talk about together:

1. The data should all support a 25 basis point rate cut in September, and the current interest rate futures of CME also reflect this market expectation. The current probability of a 25 basis point rate hike in September is 87%, which is two points higher than last night.

2. Although the total CPI continues to slow down, the core CPI rebounded for the second consecutive month on a month-on-month basis, especially rent and core service inflation (supercore) are still worthy of attention, and hidden worries have also emerged. Housing inflation rose 0.5% month-on-month in August, higher than the 0.4% increase in the previous month, and the year-on-year growth rate reached 5.2%, the first increase since March 2023.

And tonight's core PPI monthly rate exceeded expectations, mainly driven by the service industry. At present, this area has little impact, but whether the service industry can continue to go below 3% in the future needs attention

3. Another bright spot is that the monthly rate of personal actual income in August was significantly higher than the previous value, which once again supported the humanity of the US economy. The monthly rate of actual income is a more comprehensive indicator of the income of American residents than the salary data. It covers a package of income such as wage income, capital income, asset income, and government subsidies.

4. The impact of the hidden worries just mentioned in the future is: if the CPI remains below 3%, but the core inflation fails to go below 3%, the subsequent pace of the Fed will become unpredictable. If it is normal to walk and see and stop and go, it will be a great torture to the market. If after the first interest rate cut, the market's expectations for the future pace are more aggressive, the emergence of risks may trigger the risk of adjustment again.

5. It has been discussed before that it is not important whether it is 25 or 59 basis points in September. What is more important is the rhythm of the Fed's subsequent interest rate cuts. We need to make it clear that the Fed's interest rate cut path and the end interest rate level are the most important, because this determines the changes in the entire curve. It also ultimately determines the degree of easing.