Data released by the U.S. Bureau of Labor Statistics on Thursday showed that in September, the U.S. Consumer Price Index (CPI) rose 2.4% year-on-year, easing from August but higher than the market's expected 2.3%, marking the smallest year-on-year increase since February 2021. The core CPI rose 3.3% year-on-year, above the market's expected 3.2%, with the previous value at 3.2%. On a month-over-month basis, the U.S. CPI increased by 0.2% in September, unchanged from the previous value, and higher than the expected 0.1%.

Several brokerage firms have indicated that the U.S. September CPI exceeded expectations, which may cause the Federal Reserve to slow down the pace of rate cuts, but they still expect the Federal Reserve to have two 25bps rate cuts left this year.

The comprehensive U.S. September CPI exceeded expectations. CITIC Securities believes that the overall year-on-year growth rate of the U.S. CPI in September is the lowest since February 2021, mainly related to the decline in oil prices and the base effect. Among them, the price of goods fell by 0.2% month-on-month, and the price of services rose by 0.4% month-on-month. The comprehensive reading that exceeded expectations indicates that the process of resisting inflation has not ended, reducing the probability of the Federal Reserve continuing to cut rates by 50bps in a single move this year.

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Huajin Securities stated that the U.S. September core CPI was slightly higher than expected, with strong demand for durable goods and the upward transmission of wages to non-rent services being the main driving factors, and it may have strong sustainability. The temporarily low core non-durable goods rent for the month may show some degree of reversal in the future, thus the strong momentum of the U.S. core CPI in the past two months may continue to the end of the year, which may further flatten the Federal Reserve's rate cut range in this round.

Huatai Securities pointed out that the inflation exceeded expectations in August and September, showing some fluctuations in the U.S. disinflation process, which is consistent with the recent improvement in the momentum of the U.S. economy. However, due to the unexpectedly high rebound in the number of first-time applicants announced at the same time under the impact of hurricanes, the market's expectation for rate cuts did not decrease but increased.

Are there still two rate cuts left in the Federal Reserve this year?

CITIC Securities expects that the overall U.S. CPI in the fourth quarter of this year will not continue to decline, but the risk of a second round of inflation is also small, and it still expects the Federal Reserve to have two 25bps rate cuts left this year.

Huatai Securities also said that although the rebound of inflation may affect the long-term rate cut endpoint of the Fed, the overall labor market is still in a rebalancing trend, and the Fed's policy focus is still to prevent the labor market from cooling down too quickly. Therefore, under the baseline scenario, the rebound of inflation in September may not temporarily threaten the Fed's previous plan to cut rates by 25bp each in November and December.

CICC believes that the increase in inflation did not further decline, coupled with the strong non-farm data previously, may cause the Federal Reserve to slow down the pace of rate cuts. It predicts that the Federal Reserve will cut rates by 25 basis points in November, and the guidance for future rate cuts will be more cautious. The baseline judgment for the U.S. economy is still a soft landing, but the road to a soft landing will not be smooth. The recent sharp rebound in U.S. Treasury yields is a good reminder, and it also indicates that the pattern of U.S. dollar interest rates remaining at a high level for a longer period has not changed.How will the U.S. stock market, the U.S. dollar, and U.S. Treasury bonds perform in the future?

CITIC Securities stated that it is optimistic about the potential for the steepening of the U.S. Treasury yield curve and maintains a preference for asset allocation that favors U.S. stocks over U.S. Treasury bonds.

"The base case for the U.S. economy remains a soft landing, but the path to a soft landing will not be smooth. The recent significant rebound in U.S. Treasury yields indicates that the pattern of U.S. dollar interest rates remaining high for an extended period has not changed," said CICC.