Market Shock: Prolonged Inflation Increases Interest Rate Cuts Until the End of 2025

The financial market is undergoing a period of strong volatility after the report on the US Consumer Price Index (CPI) showed a sharp increase in inflation, reaching the highest level since June 2024. These data have shaken expectations of an early interest rate cut, forcing investors to adjust their strategies towards a prolonged 'tightening of monetary policy.' Here are the highlights and impacts of this trend:

1. Inflation Situation and Its Implications on Monetary Policy Inflation is escalating: The latest CPI report shows alarming price pressures, making it difficult to control inflation. Experts believe that core inflation indicators (core inflation) remain high, indicating continued strong price pressures in the US economy. Delaying interest rate cuts: Previously, the market forecasted that the interest rate cut from the Federal Reserve (Fed) would take place in September 2025. However, with the unexpected sharp increase in inflation data, this expectation has now been pushed back to the end of 2025. The policy of "high interest rates for a long period of time" is currently seen as the dominant trend of the Fed to restrain inflation.
2. Direct Impact on the Financial Market Stock market: S&P 500 Futures fell more than 1% during the trading session as investors began to worry about the prolonged tightening of monetary policy. Other stock indices such as Nasdaq and Dow Jones also witnessed similar declines, leading to a sharp drop in market confidence. Bond market: Government bond yields, especially the 10-year US bond yields, have surged. This increase reflects investors' expectations that interest rates will remain high for a long time, putting significant pressure on stock valuations, especially growth companies. Risky assets: Risk assets such as cryptocurrencies (Bitcoin, Ethereum, and other altcoins) are also not immune to selling pressure as capital flows seek safety. This indicates that investors' risk sentiment is becoming more cautious in the context of economic instability.
3. Prospects and Possible Scenarios Fed's policy: The Fed chairman, Mr. Jerome Powell, along with other members, has consistently emphasized that there will be no major changes in policy until there are clear signs of a significant cooling of inflation. With the current data, the Fed may continue to maintain or even strengthen monetary tightening measures, aiming to stabilize prices. Economic slowdown risks: Extending the tight monetary policy could have negative side effects on the economy. As borrowing costs increase, businesses may struggle to invest, consumer spending may decrease, and production expansion may also decline, thereby increasing the risk of economic slowdown or even recession. Monitor market reactions: Investors need to closely monitor the developments from speeches by Fed officials as well as the bond market's reactions. Signals from these can provide clues to potential policy adjustments in the future and help predict the next market trends.
4. Conclusion Recent inflation reports have marked a significant turning point in the US economic context, altering the market's expectations for interest rate cuts. With the prospect of "prolonged high interest rates," investors are preparing for an extended period of instability, with pressure on stocks, bonds, and risky assets. In this context, closely monitoring developments from the Fed and macroeconomic indicators is essential for making sound investment decisions.