Affected by better-than-expected employment and inflation data, expectations for a Federal Reserve rate cut have begun to gradually diminish, while the US dollar has started to rebound from a 100-point bottom, with the depreciation of the renminbi being relatively larger.
On October 15, Federal Reserve Governor Waller stated that future rate cuts would require "greater caution." He is concerned that the US economy may still operate at a pace higher than expected. Waller implied that the magnitude of future rate cuts would be less than the significant reduction in September.
In response to this statement, the US dollar fluctuated on October 15, rising from a low of 103.1605 to 103.31 around noon, an increase of 0.11%, and then experienced a slight adjustment around 5 pm.
The reaction of the renminbi exchange rate was even more intense, with the offshore renminbi depreciating from a high of 7.0911, crossing several integer thresholds of 7.10, 7.11, 7.12, and 7.13, to 7.1344, a depreciation of 433 basis points.
Waller's conclusion is based on a series of recent economic data that exceeded market expectations, with inflation rebounding unexpectedly and the labor market strengthening again, casting a shadow over the prospects for a Federal Reserve rate cut.
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Data released in the United States last week showed that the CPI in September rose by 2.4% year-on-year, with an expected value of 2.3%, the lowest level since February 2021, mainly due to a decrease in energy prices; it increased by 0.2% month-on-month, equal to the previous value, and exceeded the expected value of 0.1%.
Excluding the more volatile food and energy costs, the core CPI in September rose by 3.3% year-on-year, slightly exceeding the expected and previous value of 3.2%; it increased by 0.3% month-on-month, slightly higher than the expected 0.2%, equal to the previous value, and the highest level since March.
The non-farm employment data for September was also quite strong, with the non-farm employment population increasing by 254,000 people, far exceeding the expected 150,000 people. The US unemployment rate was also lower than expected, with the September unemployment rate at 4.1%, lower than the expected 4.2%, and the August previous value was 4.2%. The good condition of the job market led to wage levels that were also higher than expected, with the average hourly wage in September increasing by 4% year-on-year, the highest since May, while the expected increase was 3.8%.
In fact, it was based on the continuous decline in inflation in the months before August and a series of weak labor market data that the Federal Reserve began to cut rates in September, with a reduction of up to 50 basis points. The sudden recurrence of inflation in the United States means that the Federal Reserve's aggressive rate-cutting strategy must be adjusted.
Affected by the better-than-expected data, the yield on US 10-year Treasury bonds has risen from 3.644% on September 16 to the current 4.109%.The current market expectation is that the Federal Reserve will only cut interest rates by 45 basis points in the remaining two FOMC meetings within the year, whereas previously, a 50 basis point cut was considered a "done deal" just before the release of the September non-farm report. Some people expect only one rate cut remaining for the year, or even possibly a 25 basis point cut this year followed by a pause in rate cuts until early next year.