U.S. interest rate hike enters the second half In September, the U.S. CPI continued to exceed expectations, rising 8.2% year-on-year, estimated at 8.1%, and the previous value was 8.3%. In the past few months, we have been watching the Fed's epic rate hike, and in the next four quarters, it is expected that stocks and bonds will double. One of the reasons is that the US interest rate hike in the fourth quarter entered the second half.

Currently, U.S. inflation is at an inflection point from upward to downward. The driving force of energy items is falling, and the driving force of U.S. inflation has turned to two-wheel drive. We believe that in the future, U.S. inflation may further turn to one-wheel drive. 

The energy driving force peaked and fell, and the US inflation driving force changed from three to two. In the past, the rise of U.S. inflation was actually driven by the three major items of inflation. Before June 2022, the CPI of energy, food and core items all rise, and the upward momentum of US inflation under the three-wheel drive was very strong. After the U.S. started the epic rate hike, the energy CPI gradually fell from a high of 146.66 in June to 131.38 in August. But the prices of food and energy continued to rise, and U.S. inflation has shifted from a three-wheel drive to a two-wheel drive. 

Looking ahead, U.S. inflation may further shift to one-wheel drive in the future. Historically, global food prices and energy prices are highly correlated, with the characteristics of rising and falling. The reason behind this is that there is a linkage mechanism between the use of chemical fertilizers, because high grain yield is achieved through the conversion of energy in chemical fertilizers.Today, the high point of energy prices has passed, and crude oil prices have seen a significant correction. In August, the price of U.S. West Texas Intermediate crude oil has fallen to $91.57 per barrel. When the driving force of energy items on inflation weakens, the driving force of food items will gradually weaken, so looking forward, we believe that US inflation may further shift to one-wheel drive in the future. 

It is predicted that the change in US inflation in the fourth quarter may be approaching, and the subsequent Fed rate hike will enter the second half. The growth rate of housing rents may peak in the fourth quarter, and the driving force of core inflation will gradually fade. Historical experience shows that U.S. home prices tend to lead housing rents by about 16 months. The reason behind this is that when the rental contract expires and a new one is signed, the housing rent may be adjusted. In July 2021, the growth rate of housing prices in Freddie Mac in the United States peaked. According to the leading law of housing prices and housing rents, the growth rate of housing rents may peak in the fourth quarter of 2022. Since the weight of housing rents is high, about 32%, after the growth of housing rents peaks, the upward momentum of core inflation in the United States will gradually fade.Entering the fourth quarter, the rate of decline in U.S. inflation may accelerate. We believe the uptick in core inflation is exhausted. 1) Inflation expectations implied by 10-year U.S. Treasury yields peaked and fell. The 10-year U.S. Treasury yield implied inflation expectations peaked at 2.9% in April, and was 2.4% as of September, a clear drop from the high point. 2) Inflation expectations in the University of Michigan survey peaked and fell. The high point of the University of Michigan's 5-year inflation expectations came in June, reaching 3.1%, and as of September it was 2.7%, the same high point has fallen significantly.

（Writer：Ticky）