The recently released core inflation data for July in the United States (excluding food and energy) delivered a heavy blow to the market. This figure increased by 3.1% year-on-year, not only higher than June's 2.9% but also exceeding the experts' forecast of 3%, reaching the highest point in nearly five months.

This means that the belief that inflation would gradually decrease has been shattered; reality is very harsh.

Why is it so bad?

  1. Housing and healthcare are still very expensive: housing costs rose by 5.2%, and medical expenses increased by 4.1%. These items decrease in price very slowly, completely offsetting the benefits brought by lower gasoline prices.

  2. The 'time bomb' of tariffs has exploded: The import tariffs added by the United States in May are now finally showing their effects. The price of imported goods surged by 0.8% in July, the largest increase in nearly two years, directly raising core inflation by 0.17 percentage points. There were previously debates about whether the impact of tariffs was temporary; now the data proves that the lagging effects of 3 to 5 months are very real.

The market reaction is severe:

  • The market's perception of the Federal Reserve's interest rate cut in September plummeted from over 90% to just over 60% in one day.

  • Short-term Treasury yields (like the 2-year) surged.

  • Cryptocurrency also suffered; Bitcoin crashed by over five thousand dollars in an hour, causing many to be liquidated, resulting in losses exceeding 700 million dollars.

  • The market now expects that during the remaining time this year, the Federal Reserve will cut rates just once or slightly more (previously expecting nearly two cuts).

Core summary:

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