CPI data is lower than expected, the Fed's interest rate cut window may open early

(1) If CPI is higher than expected, the Fed’s interest rate cut expectations will be delayed, U.S. Treasury yields will rise, and gold prices may fall in the short term under pressure

(2) If CPI meets or falls short of expectations, the Fed’s interest rate cut expectations will remain, the U.S. dollar index will weaken, and gold prices may rise

Core data: Inflation cools down more than expected

At 20:30 on the evening of March 12, the U.S. Department of Labor announced that the Consumer Price Index (CPI) in February rose 2.8% year-on-year and 0.2% month-on-month, both lower than market expectations of 2.9% and 0.3%. The core CPI excluding food and energy was 3.1% year-on-year and 0.2% month-on-month, also lower than the expected 3.2% and 0.3%. This is the first time that US inflation data has fallen after rebounding for four consecutive months, and the year-on-year growth rate hit a new low since April 2021.

Itemized data showed that housing costs rose 0.3%, contributing nearly half of the overall increase, but moderate increases in healthcare and used car prices were offset by a 4% drop in airfares and a 1% drop in gasoline prices. It is worth noting that the year-on-year increase in egg prices was as high as 58.8%, making it the main driver of food price increases for the second consecutive month.

 

　　Market reaction: Expectations of rate cuts rise and asset prices fluctuate

After the data was released, the US dollar index plunged to 103.47 in the short term, and then rebounded to 103.73. The three major U.S. stock indices opened higher, with the Dow Jones Industrial Average rising 0.49% at one point. Technology stocks led the gains, with Tesla and Nvidia rising more than 6%. The volatility of U.S. Treasury yields intensified, with the 10-year Treasury yield briefly falling to 4.28% before rebounding to 4.31%, while the 2-year yield remained around 3.99%.

The gold market continued its strong performance, with COMEX gold futures closing up 0.77% at $2,943.4 an ounce, hitting an intraday high of $2,948.9, approaching the all-time high of $2,956. Gold ETFs have seen net inflows of over 300 million yuan for five consecutive days, showing strong demand for risk aversion in the market.

 

　　Policy Outlook: The Fed faces a dilemma

Although inflation data has fallen back, there is still uncertainty about the Fed's policy path. The market currently expects the probability of the first interest rate cut in June to rise to 68%, and the cumulative interest rate cut this year will reach 75 basis points. However, Federal Reserve Chairman Powell recently emphasized that there is "no rush to cut interest rates," saying that it is necessary to observe the impact of economic data and trade policies.

Analysis pointed out that the current data does not reflect the impact of the steel and aluminum tariffs that came into effect in early March and the second round of tariffs on China, and the decline in inflation may only be the "calm before the storm." CITIC Securities' calculations show that if the 20% tariff on China is fully passed on, the PCE index will rise by 0.34%. In addition, the year-on-year increase in housing costs of 4.2% was still significantly higher than the 2% target, indicating that inflation stickiness remains.

Market impact: investment strategies under the long-short game

Regarding the capital market, institutional views are clearly divided:

Gold Market:In the short term, gold prices will be supported by expectations of interest rate cuts, but if inflation rebounds or leads to a stronger US dollar, gold prices may face a pullback. Goldman Sachs maintains 3000

For the target price of the US dollar, it is recommended to pay attention to the support level of $2,900 for Bitcoin; Morgan Stanley warned of technical overbought risks.

U.S. Treasury bond market:Zheshang International believes that under the risk of stagflation, the 10-year US Treasury bond interest rate is expected to fall to 4%, and it is recommended to buy on dips above 4.3%.

US stock market:Goldman Sachs lowered its year-end target for the S&P 500 to 6,200 points and recommended focusing on defensive sectors; Citigroup raised its rating on Chinese stocks to overweight and was optimistic about the performance of the technology sector.

 

　　Future focus:

1. The Fed’s statement on the path of rate cuts at its March 20 meeting

2. Details of the “reciprocal tariff” policy and its implementation in early April

3. March 19 PPI data confirms inflation transmission

4. The geopolitical situation in the Middle East and the implementation of the ceasefire agreement between Russia and Ukraine

Overall, the February CPI data provides the Federal Reserve with policy buffer space, but the lagged impact of tariff policies and the risk of slowing economic growth may still complicate the inflation trend. Investors need to remain flexible, closely track data verification and event developments, and seize structural opportunities in the long-short game.