To The Moon

September CPI beats consensus again, just like that of August. (Refere to: Why August CPI beat market consensus?)

Similarly, the market is still afraid of the Fed's interest rate increasing after the high inflation. 

Unsimilarly, market is not in high expectation. The recent trend has priced-in some recession expectations. Therefore, there was a huge rebound after the sharp drop.$S&P 500(.SPX)$$SPDR S&P 500 ETF Trust(SPY)$$DJIA(.DJI)$$NASDAQ(.IXIC)$

September CPI is 8.2% YoY, beat consensus of 8.1%, while core inflation continue to rise to 6.6%, beat consensus of 6.5%.

The rise in core inflation means that endogenous stickiness of inflation has increased.

According to the structure of CPI, Shelter (rent), food and health care indexThe growth was the biggest of many contributors, but the external energy sector, due to the decline in oil prices, fell by 2.1% year-on-year.

In terms of energy, Focus on natural gas. In September, it rose 33% year-on-year and 2.9% month-on-month, which is the highest among all projects. Now that winter is coming, the increased demand for natural gas will probably push up the price further.

The food index increased 0.8 percent in September, the same increase as August,and rose 13.0 percent over the last 12 months, cereals and bakery products increased 16.2 percent over the year and the index for dairy and related products rose 15.9 percent.

Restaurants can resist the increase of basic costs to a certain extent because of their scale advantages.

Core CPI rose by 6.6%, up 0.6% month-on-month, which was close to the forecast of Nowcasting model of Cleveland Fed. Among them, the biggest impact is rent, up 6.6% year-on-year. This is also due to the rising mortgage interest rate. Because it accounts for a large proportion, it has a deep influence.

Medical services, air tickets, etc. also increased year-on-year for two consecutive months. Although these two items accounted for a small proportion, the trend was obvious. Among them, the cost of medical services, mainly doctors' services, is rising, which means that seeing a doctor is getting more and more expensive, which deserves attention.

Under high inflation, what changes may occur in interest rates increasing?

The CPI in September has not yet reached a high base, so it is not necessary to refer to itIt is expected to fall, but the base in October last year has already started to rise, and in theory CPI may drop a lot.

However, the FOMC's interest rate resolution in November was before the CPI was released in October. Therefore, the Nuo Nuo-only Federal Reserve may be "at a loss" again and continue to "lag behind" to give the market a strong and firm expectation of raising interest rates, which the market does not want to see.

According to the Fed interest rate observation tool of CME, the probability of raising interest rates by 75 basis points in November is 99%, while the maximum probability of raising interest rates in December is 50 basis points before CPI is announced, but after CPI is announced, it also becomes 75 basis points.

It is not known whether the Fed will delay the reduction of interest rate hikes and the pace of interest rate decline.But now the market has begun to gradually count on the 75 basis points increase in December.

Why shouldn't the Fed raise interest rates to that high?

First, the data proves that, endogenous variables brought about by interest rate increasing have become the murderers pushing up CPIThe most obvious is the rent. In fact, the cause of this inflation is that the Fed can't control commodities, and the most fundamental price of commodities is the relationship between supply and demand. Although the Fed's interest rate hike pushed up the US dollar, it actually hurt all assets except the US dollar.

Secondlu, Interest rate hike, CPI and unemployment rate are all lagging datas.This time last year, in the face of the rise of commodities, the Fed vowed that inflation was only temporary and would soon return to normal, resulting in a swelling in the face. If Powell had Greenspan's consciousness at that time, he was quick instead of being Nuo Nuo, not hard when he was hard, and not soft when he was soft, it might not be so bad now. Now, if endogenous response continues to lag behind, it can only further harm the real economy.

At the same time,The unemployment rate is also a lagging indicator, and the Fed will not be notified in advance of the surge in unemployment rate.In a few months, it will be clear whether the unemployment rate is falling because of inflation or because of economic prosperity.

Third,The Fed's political attributes are too strong.There is a growing lack of independent judgment, and for the sake of political service, the global economy is also dragged in to bury Biden. In a twinkling of an eye, the United States is going to have mid-term elections, and the internal pressure is still great. Even if the Federal Reserve does not want to raise interest rates, it should put on a sense of "willing to fight inflation to the death" and just please Americans on the surface.

A few days ago,$ARK Innovation ETF(ARKK)$Cathee Wood sent itAn open letter to the Federal ReserveThat the Fed should stop raising interest rates. The reason is simple, because the current relationship between supply and demand has changed, and the Fed has not kept up at all.

Although ARK's positions are mostly growth companies, which are extremely sensitive to interest rate hikes, what they say is indeed what is happening, such as the increase of corporate inventories and the decline of demand. At the pace of the Fed, after raising interest rates in November and seeing inflation ease in October, it is possible to relax the tone?

It depends on whether Powell wants to be obsequious or make a prompt decision！