U.S. Debt, Inflation, and Japanese Rate Hike Pressures Intertwine, Global Assets Face High-Rate Repricing

On August 26, the U.S. economy displayed a contradictory pattern of "demand cooling, yet inflation remains sticky." U.S. consumer confidence dropped to its lowest point of the year, and new home sales in July fell to a six-month low, as high mortgage rates continued to suppress housing demand. However, Federal Reserve officials have not lowered their vigilance regarding inflation. Collins stated that if there is no evidence of sustained inflation decline, policy may need to be tightened "as soon as possible." Barkin warned that as debt continues to accumulate, there may eventually be a "clearing moment" when investors stop absorbing U.S. debt. Additionally, four of the twelve regional Federal Reserve banks supported raising the discount rate in July, reflecting an increasing internal discussion within the Fed regarding the degree of policy restriction.

The July PCE report, released tonight, is therefore critical. The market expects the core PCE year-over-year growth rate to remain at 3.3% and a month-over-month increase of 0.2%. If the data exceeds expectations, it will further strengthen the possibility of maintaining high rates or even a rate hike in September. However, the market still anticipates a higher likelihood of no action in September. What truly deserves attention is whether inflation will form new stickiness due to tariffs, energy, and AI infrastructure costs. Particularly, the PCE statistical methodology will undergo significant adjustments at the end of September, and subsequent data may face retrospective revisions, which will increase the difficulty of interpreting inflation trends.

Overseas, Japan's inflation and rate hike expectations are rising in tandem, further increasing pressure on the global bond market. Australia's core inflation in July also exceeded expectations, raising the risk of another rate hike by the RBA. This indicates that global central banks are not merely facing weak demand but are experiencing cooling economic growth. However, structural inflation, fiscal deficits, and energy costs still limit the space for rate cuts. AI investment remains a crucial support for global growth, but if the long-end yields of U.S. debt, the return of Japanese funds, and global policy rates remain high simultaneously, the rising cost of capital may ultimately pressure stocks, cryptocurrencies, and other high-valuation assets.

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