On September 13th local time, the U.S. Department of Labor released data showing that the U.S. Consumer Price Index (CPI) rose 8.3% year-on-year in August this year. Subsequently, amid the spread of inflation concerns, the U.S. stock market plummeted on the same day, and the three major stock indexes hit the largest single-day decline in more than two years.
More than an analyst pointed out in an interview with CCTV reporters on the Central Station that the year-on-year growth rate of CPI remains high, and has been above 8% for six consecutive months. In particular, the accelerated increase in core CPI shows that the inflation pressure in the United States will be difficult to alleviate in the short term. Fed is forced to continue to aggressively control prices. hike rate will have a further impact on the US stock market and even the overall economy.
△Data from the US Department of Labor show that although the year-on-year growth rate of CPI (blue line) in August declined for two consecutive months, it was still above 8% for six consecutive months, indicating that inflation level remains high.
Housing and food prices continue to rise
Data released on the same day showed that in August this year, the US Consumer Price Index (CPI) rose 0.1% month-on-month, 0.1% higher than the market expectations, 8.3% year-on-year, and 8.1% higher than the market expectations.
In the month, after excluding the volatile food and energy prices, the core CPI rose by 0.6% month-on-month and 6.3% year-on-year, both higher than market expectations.
Although the year-on-year growth rate of CPI has declined for two consecutive months, it still remains at a historical high and is above 8% for six consecutive months, indicating that inflation remains high, among which the rising prices of housing, food and health care are the main driving forces.
Specifically, housing costs, which account for one-third of the weight of CPI, rose 0.7% month-on-month and 6.2% year-on-year; food prices rose 0.8% month-on-month and 11.4% year-on-year; health care costs rose 0.8% month-on-month and 5.6% year-on-year.
analysis believes that the continued rise in housing and food prices in the United States will have an impact on consumer psychology, which not only shows that inflation is stubborn, but also makes the Federal Reserve lack the room to slow down interest rate hikes, and will be forced to continue aggressively hikes in the future to deal with inflation.
Assistant Professor Felipe Silva, University of Missouri Silva) said in an interview with CCTV reporters on CCTV: "About the inflation data just released today, they are higher than expected. The market originally expected to be 0.2 percentage points lower than the actual data. However, what I want to say is that the situation in the next two months is basically like a dependency function, depending on how the concerns about the inflation and the economic recession actually evolve. You will see that the Fed actually becomes more radical or less radical."
Felipe Silva pointed out: "As of now, the market has basically updated its expectations for the next rate hike. I think this has been clear. The market expects a 75 basis point rate hike next time, which is the most likely situation so far."
△ Bloomberg reported that inflation exceeds expectations may make the Fed tighten the monetary policy more radically.
Experts explain in detail why the stock market plummeted
At present, the market generally expects that the Federal Reserve will curb demand through aggressive interest rate hikes at the cost of slowing economic growth, so as to achieve the goal of controlling prices.
Federal Chairman Powell previously said at the annual meeting of the global central bank that the Fed may maintain a period of time after hiking interest rates to a restrictive level, emphasizing that historical experience shows that monetary policy should not be relaxed too early. He also admitted that reducing inflation may require economic growth that is below the trend for a period of time, and labor market conditions are likely to show some weakness, which will cause pain to American households and businesses.
The tough statements of officials such as Powell were interpreted by some market participants as "as long as the inflation data does not improve significantly, the Federal Reserve will adhere to the monetary policy of aggressive interest rate hikes." After the release of the CPI data on the 13th, worries quickly spread, and the US stock market plummeted that day.
As of the close of the day, the Dow Jones Industrial Average fell 1276.37 points, or 3.94%, to 31104.97 points; S&P 500 index fell 177.72 points, or 4.32%, to 3932.69 points; Nasdaq Comprehensive Index fell 632.84 points, or 5.16%, to 11633.57 points. All three major stock indexes have recorded their biggest single-day decline since June 11, 2020.This decline caused the Dow Jones Index to fall 14% in 2022, the S&P 500 Index to fall 17% and the Nasdaq Composite Index to fall 26%.
Haito Global Founder and CEO Wang Jinlong analyzed in an interview with CCTV reporters on the Central Television: "Today, all US stock markets plummeted, which was basically caused by the CPI data exceeding market expectations. The market's expectations for the CPI and the Fed's interest rate hike in the past week are relatively optimistic. The stock market has also rebounded all the way, and today it fell directly to the level of the beginning of the month. The CPI data in August rose by 8.3% year-on-year, which is not outrageous. It has also dropped slightly from 8.5% in July, but the core CPI has risen sharply compared with the same period last year, and the increase in July is still accelerating. The market can effectively control the United States this year CPI has lost confidence. The accelerated rise of core CPI reflects that inflation is more 'sticky'. Although prices such as gasoline and travel have fallen, prices of houses and food are still rising. At the same time, as wages increase, the prices of services are also continuing to rise. "
Wang Jinlong pointed out: "The market basically expects the Federal Reserve to raise interest rates by 75 basis points at the beginning of this week, and even a small probability will only raise interest rates by 50 basis points. But after the release of CPI data in August, the overall turnover, and the market has expected that one-third of the interest rate hikes by 100 basis points. The rapid rise in interest rates will aggravate the capital costs of enterprises and individuals, further compressing profits Space has caused the US economy to basically lose hope of a 'soft landing', so the market responded violently, and the collective consciousness of 'de-risk' rose again. The market overall sold assets and held cash, not only the stock market, but also the assets such as Treasury bonds, gold and oil fell across the board, while the dollar index continued to rise at a high level. "
Felipe Silva further pointed out: "If interest rates rise, your capital cost will rise over time, and your consumption decisions will be affected, so consumer confidence will decline, which is the most direct impact you can think of. Rate hikes will also produce stock prices . When you raise interest rates, stock prices will have negative reactions. Of course, companies will also update their investment and consumption decisions. Since companies expect consumer confidence to slow down, they will hesitate. The natural consequence is that they will reduce investment, they will reduce jobs, and this has a similar overall impact on the economy. In short, this is how monetary policy is transmitted."
At the same time, the Wall Street Journal analyzed that although the current U.S. employment data is acceptable, it would be wrong if someone thinks that the Fed's move to curb inflation will not cause interest rates to rise to a level that is enough to hinder employment. Some economists, including former US Treasury Secretary Summers, even predict that the cost of reducing inflation will be the U.S. unemployment rate exceeds 6%. (CCTV reporter Gu Xiang and Liu Xu)
Source: CCTV News Client
