Analysts' reports from Golden Qilin Analysts provide authoritative, professional, timely, and comprehensive insights to help you discover potential thematic opportunities!
The chief economist of Guosheng Securities, Dr. Xiong Yuan
Event: On October 24, 2025, at 20:30 Beijing time, the U.S. released September 2025 CPI data.
Core Conclusion: The September CPI and core CPI in the U.S. were lower than expected. Following the data release, expectations for a Federal Reserve interest rate cut changed little, with implied probabilities in interest rate futures for cuts in October and December approaching 100%. We believe the Fed's decision to cut rates is primarily short-term focused on employment, while medium to long-term, it is centered on inflation. Continuous cuts in October and December appear practically guaranteed; based on analyses of employment and real rates, we expect three additional cuts in 2026, mainly concentrated in the first half of the year. The current "lead" in the market's expectations for rate cuts is considered reasonably priced, but it also indicates limited impact if cuts meet expectations, and potential market disturbances if they fall short.
1. The U.S. September CPI rose 3.0% year-over-year, lower than the expected 3.1% but higher than the previous 2.9%, marking the highest level since June of last year; core CPI rose 3.0%, below both expectations and last month’s 3.1%. Breaking it down, only energy showed a month-on-month increase, while food, core goods, and core services saw slight declines. The "super core inflation," which excludes food, energy, and housing, increased by 0.11% month-on-month, compared to 0.12% and 0.18% in August and July, respectively. Overall, the U.S. inflation for September continues to show a "slow heat" state, with the impact of tariffs remaining mild.
2. Following the CPI release, U.S. stocks rose while bonds and the dollar remained stable, with little change in rate cut expectations. The implied frequency of interest rate cuts in interest rate futures remains at two for this year, signaling 25 basis points cuts in both October and December; before the end of 2026, a total of 4.7 cuts is anticipated, implying three further cuts (totaling 75 basis points) likely in 2026.
3. In the short term, the U.S. job market still faces downward risks, while inflationary pressures are temporarily mild; thus, continuous rate cuts by the Fed are appropriate. However, based on estimates of monetary policy lags, employment is nearing a rebound point. The gradual impact of tariffs on inflation indicates limited space for rate cuts, which can be seen as "front-loaded" rather than "increased." Regarding how much the rate should drop, assessments from real policy rates (policy rate minus inflation) show that since 1990, the Fed's real policy rate central tendency is 0.2%, with differing central tendencies between two periods: 1.5% from 1990-2007 and -1.1% from 2008-2019. Given a non-gloomy outlook for the U.S. economy in 2026, we anticipate that the real policy rate could reach neutral levels (around 0%). Bloomberg’s consensus forecasts predict a 2.9% year-over-year CPI for the U.S. in 2026, slightly higher than 2.8% in 2025. Thus, stopping cuts may be reasonable after approximately 125 basis points.
4. Rate Cut Timeline: From this analysis, the expectation is for the Fed to cut rates by 25 basis points in both October and December, and a total of 75 basis points in 2026, mainly in the first half. Current pricing in interest rate futures reflects this trajectory, indicating that asset prices in U.S. equities, bonds, and currencies have already responded to these expected cuts. The market "leading" the Fed creates a "dilemma": even if cuts are aligned with market movements, policy efficacy may be limited; if cuts trail market expectations in timing and magnitude, it could disturb asset prices. Additionally, two other crucial points merit attention: First, a leadership change at the Fed will occur in May 2026, and the new chair’s political inclinations may significantly impact future rate cut possibilities. Second, Powell indicated on October 15 that the Fed's quantitative tightening process may be nearing its end within "the coming months," suggesting that as the divergence in rate cuts decreases, changes in "quantity" may become more vital for asset prices.
Risk Warning: Exceeding expectations for the U.S. economy and inflation, Fed monetary policy, and geopolitical conflicts.
