US September CPI comes in hot: BTC tests $80K to the downside, US semiconductor stocks broadly sell off

Original | Odaily（@OdailyChina）

Author｜Golem（@web 3_golem）

US inflation has once again poured cold water on capital markets.

On October 14, the US Department of Labor released September CPI: up 3.7% year-over-year, higher than the expected 3.6% and above August's 3.4%; core CPI, which excludes food and energy, rose 2.6% year-over-year, also above the expected 2.5%, hitting a new high since June.

After the data landed, US Treasury yields jumped, the dollar strengthened, and global risk assets fell broadly. According to MSX.COM data, the three major US stock indices all closed lower, with the Dow down 0.09%, the S&P 500 down 1.11%, and the Nasdaq down 1.88%, as tech, storage, and semiconductor sectors declined; South Korea's stock index plunged 6% at the open, touching its lowest level since July 31, with SK Hynix falling more than 7%; Bitcoin dropped below $82,000 last night, hit a low of $80,200 today, and is currently trading at $81,100, down 3% in 24 hours.

Market concerns about the Federal Reserve continuing to tighten have reignited: bets on an October rate hike have risen, while wagers on three more hikes before the end of 2027 have also increased. But most traders still lean toward "skip October, hike in December" or "one more hike within the year." According to Polymarket data, the probability of the Fed raising rates by 25 basis points in October remains at 23%, while the probability of keeping rates unchanged is 77%.

Why Is the Probability of an October Rate Hike Still Uncertain?

Although US September CPI exceeded market expectations, that does not mean the Federal Reserve will immediately restart rate hikes. Whether looking at Polymarket or CME FedWatch data, the market currently still leans toward the Fed keeping rates unchanged in October.

First, a considerable portion of this round of inflation rebound came from energy prices. US gasoline prices rose 9.1% month-over-month in September, and this item alone contributed more than half of the month's overall CPI increase. For the Fed, energy prices are heavily influenced by factors such as international oil prices and geopolitical conditions; if the increase is only temporary, the Fed usually will not decide to further tighten monetary policy based on this factor alone, but will instead pay more attention to whether core inflation continues to spread to other goods and services.

Second, the labor market has given the Fed room to wait and see. Recent employment data has been relatively weak, with September nonfarm payrolls increasing by only 29,000, below market expectations, while the unemployment rate rose to 4.2%. If inflationary pressure rises while the labor market also cools, the Fed will need to weigh controlling prices against avoiding an excessive slowdown in economic growth, rather than simply raising rates immediately because of one inflation surprise.

In addition, previous remarks by some Fed officials also left room for policy observation. New York Fed President Williams had previously expressed concern about risks in the labor market. For the Fed, observing subsequent economic data before further confirming the inflation trajectory remains a possible choice.

Therefore, the current market divergence is not hard to understand. The inflation rebound increases the risk of a rate hike, but the temporary shock from energy prices, the weakening labor market, and the Fed's assessment of policy effects all leave uncertainty over an October hike.

For the market, what truly matters is not that one CPI upside surprise will lead the Fed to raise rates once, but whether inflation will remain persistently high and ultimately force the Fed to change its established path.

Finally, the pressure from this inflation release is not concentrated in energy alone, but is distributed across multiple categories. Software prices rose 28% year-over-year, the largest increase on record; toy prices also saw record increases. Housing, airfare, medical care, and apparel also rose. Economists were particularly surprised by rising housing prices, which increased 0.40% month-over-month and pushed core inflation up by 0.15 percentage points, accounting for nearly half of the monthly increase.

Morningstar analyst Preston Caldwell said that although the market's reaction to a single month's data may be somewhat excessive, the Fed's path back to price stability appears to be becoming increasingly difficult.

Inflation May Become a Midterm Election Liability for Trump

For Trump, the trouble brought by this inflation rebound may go far beyond rising expectations of a Fed rate hike.

The data released by the US Bureau of Labor Statistics marks the first rebound in the US inflation rate since May, highlighting that the energy price shock triggered by the Middle East war is still affecting the United States. After the war broke out, gasoline and diesel prices surged, then eased somewhat in the summer, but in recent months, as tensions escalated, fuel prices rose again, pushing diesel prices to a record high. Trump has been trying to push energy prices down, but so far the results have not been ideal.

More troublesome is that rising energy prices are translating into political pressure. Gasoline prices directly affect the daily expenses of American households, while diesel prices push up operating costs in agriculture, transportation, and other industries, which may ultimately feed further into food and other consumer goods prices. For ordinary voters, macroeconomic data may be somewhat abstract, but the price board at the gas station does not lie.

A Reuters/Ipsos poll released in October showed that about 78% of US respondents believed Trump's policies were at least partly responsible for rising prices; another survey by AP and NORC showed that only 17% of US adults approved of Trump's handling of the cost of living, while 65% believed that persistently high prices should be attributed more to Trump's policies than to factors beyond his control.

With the US midterm elections approaching, control of Congress will be the core focus. Trump had previously made controlling inflation and lowering the cost of living important political promises. But if daily expenses such as gasoline, diesel, and food continue to rise, voter dissatisfaction could translate into punitive votes against Republicans, especially in fiercely contested key districts.

When inflation resurfaces, the market begins betting on rate hikes, and voters still see no sign of the promised lower prices, energy prices are no longer just a macroeconomic issue. They may also become a political problem that Republicans have to pay a price for in the midterm elections.