Following the better-than-expected U.S. non-farm report last week, the latest data also indicate that inflationary pressures in the United States have not yet dissipated. On October 10th, Eastern Time, data released by the U.S. Department of Labor showed that the U.S. CPI year-over-year growth rate for September decreased from 2.5% in August to 2.4%, marking a decline for six consecutive months, with a month-over-month increase of 0.2%, slightly higher than expected; the core CPI grew by 3.3% year-over-year in September, with a month-over-month increase of 0.3%, also slightly exceeding expectations. After the data release, the three major U.S. stock index futures fell before the market opened.

Boosted by factors such as housing and food, the inflation data for September slightly exceeded expectations. However, the data has a dual nature. From an optimistic perspective, the inflation trend has not gone off track, and the market still expects the Federal Reserve to cut interest rates by 25 basis points in November. Huang Jiacheng, Managing Director of Invesco and Head of Fixed Income for the Asia-Pacific region, told a reporter from 21st Century Economic Report that although the path of U.S. inflation's decline is not smooth, it is gradually approaching the 2% target overall. Recently, both the CPI and PCE price indices have been trending downward, and future inflation issues can be controlled. The job market has cooled but remains resilient, and the basic scenario for the U.S. economy is a soft landing.

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Recent CPI and non-farm data also confirm the rationality of the disagreements at the Federal Reserve's September meeting. The "great pivot" of the Federal Reserve seems like yesterday. At the September meeting, 11 out of 12 voters supported a 50 basis point rate cut, with only Federal Reserve Governor Bowman voting against, supporting only a 25 basis point rate cut. However, the actual disagreement was even greater, with far more than one voter internally opposed to a 50 basis point rate cut. The minutes of the meeting released on October 9th, Eastern Time, showed that the disagreements among Federal Reserve officials were much greater than they appeared on the surface, with "some" officials supporting a smaller 25 basis point rate cut. Some officials also emphasized that there were "reasonable reasons" to lower the interest rate by 25 basis points at the meeting at the end of July.

Before September 18th, Wall Street had not reached a consensus on the magnitude of the Federal Reserve's rate cut, and at the decision stage, the "vast majority" of participants supported a 50 basis point rate cut.

Despite some disagreements, the consensus among Federal Reserve officials is that the downward risks in the U.S. job market have increased, and they are more confident in the sustained decline of inflation to the target. On this basis, the Federal Reserve made the decision to cut interest rates by 50 basis points. In Wang Xinjie's view, the Federal Reserve's 50 basis point rate cut in September was in line with the economic environment at the time, especially the cooling of the labor market, which needed to provide support for a soft landing of the U.S. economy.

In the medium to long term, the intensity of the Federal Reserve's rate cut cycle at the beginning is not the key issue. As some Federal Reserve officials have said: The more important issue is the overall path of policy normalization, rather than the specific magnitude of the first rate cut at the September meeting. The future path of the Federal Reserve's monetary policy still requires more economic data to be depicted, and uncertainty will be the norm.

Will aggressive rate cuts be hard to reappear?After the September meeting, recent data has led the Federal Reserve to further shift from a "dove" to a "hawk" stance. Going forward, interest rate cuts of 25 basis points will become more common, while aggressive cuts of 50 basis points may be less likely to reoccur.

Wang Xinjie analyzed that the recent non-farm payroll data demonstrated the resilience of the U.S. economy. The September employment data once again showed strength, with 254,000 new non-farm jobs added, exceeding market expectations of 150,000. The unemployment rate of 4.1% was also lower than market expectations. Particularly, the upward revision of non-farm employment numbers for July and August has temporarily reversed the market's previous concerns about a U.S. economic recession. This has led to a significant adjustment in market expectations for Federal Reserve rate cuts within the year, with expectations for rate cuts dropping from more than two times to 1 to 2 times, and the pace of rate cuts is more likely to be 25 basis points.

Cooling inflation and economic resilience support a moderate rate cut, reducing the urgency for aggressive rate cuts by the Federal Reserve. Kathy Bostjancic, Chief Economist at insurance and financial services company Nationwide, also stated that she expects the Federal Reserve to continue lowering the federal funds rate in the coming months, but the cuts will likely be smaller, more likely to be 25 basis points.

On October 9th, the "anchor of global asset pricing," the 10-year U.S. Treasury yield, rose further above 4%, and the U.S. Dollar Index rose to an eight-week high, approaching the 103 mark. In the short term, the U.S. dollar and U.S. Treasury yields may maintain relatively high levels.

Skylar Montgomery Koning, a foreign exchange strategist at Barclays, said that before the release of the September labor market report, the market was very bearish on the U.S. dollar, and the continued unwinding of U.S. dollar bearish positions may further support the dollar.

Affected by the improvement in U.S. economic data and the retreat of expectations for aggressive Federal Reserve rate cuts, U.S. Treasury yields and the U.S. Dollar Index have recently rebounded. However, in the medium to long term, as the Federal Reserve's rate-cutting cycle progresses and the U.S. economic growth rate slows down, the U.S. dollar and U.S. Treasury yields will still be dominated by a downward trend. Nevertheless, considering that the U.S. economy is expected to experience a moderate slowdown and the global geopolitical situation remains complex and severe, the speed and magnitude of the U.S. Dollar Index's decline may be limited.

For emerging markets, the pace of short-term capital inflows has slowed somewhat, but in the long term, after the cooling of the U.S. dollar's siphoning effect, liquidity is still expected to flow back to emerging markets.