How much will the Federal Reserve cut interest rates in September? The non-farm employment data released last week was mixed, failing to be conclusive, and the market has shifted its focus to the upcoming CPI data release.

At 20:30 Beijing time on Wednesday, the U.S. Bureau of Labor Statistics will announce the August CPI data. The market currently expects that both the U.S. CPI and core CPI will rise by 0.2% month-on-month in August, unchanged from the previous month.

In terms of year-on-year growth, the market expects the CPI to increase by 2.5% in August, slowing down from the previous value of 2.9%, while the core CPI is expected to remain unchanged from the previous value of 3.2%, which is only one-third of what it was two years ago.

Current futures market pricing shows that there is a 66% probability of the Federal Reserve cutting rates by 25 basis points on September 18th, and a 34% probability of a 50 basis point cut. Analysts believe that CPI in line with expectations will solidify the expectation of a 25 basis point cut, while any cooling beyond expectations will increase investors' bets on a 50 basis point cut.

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Citi economists Veronica Clark and Andrew Hollenhorst said in a data preview on September 9th, in terms of relevance to Federal Reserve policy decisions, inflation data is quickly giving way to labor market data, but since the August employment report is still inconclusive, the August CPI data may have an impact:

"Given the increasing downside risks to the labor market and economic activity, the threshold for weaker CPI data to signal a larger rate cut may be low."

For a substantial rate cut of 50 basis points, the market still harbors expectations, although it may not necessarily be in September, or even before the U.S. general election on November 5th.

The market expects that by the end of January next year, the Federal Reserve will have cut rates by 150 basis points. To achieve this level of easing, the Federal Reserve must implement at least two rate cuts of at least 50 basis points in two of the four meetings during this period.

August CPI: Rent is expected to return to a downward trend, with clothing prices being the biggest variable.

Analysts believe that the rent inflation in August is expected to be lower than in July, which had increased due to an abnormal increase in the western region in July.Nomura Securities economist Aichi Amemiya stated that the All Tenant Rent Return (ATRR) index from the U.S. Bureau of Labor Statistics is the most reliable leading indicator, suggesting that official rent inflation is on the decline. Moreover, the supply of rental apartment buildings remains high, so the underlying trend of rent inflation is unlikely to re-accelerate in the near term.

Should rent inflation decrease, it would help to offset the rebound in other service categories, such as healthcare and airfare, which experienced an unusual drop in July.

Automobile insurance inflation is expected to slow down. Over the past two years, automobile insurance inflation has been a major driver of inflation in the U.S. service sector, but there are signs indicating that insurance providers may decelerate the pace of price increases in the coming months.

Morgan Stanley analysis points out that insurance rate filings in July seem to have already begun to slow down, and this trend is expected to continue, with a more noticeable deceleration in the automobile insurance CPI before the end of the year.

Apparel prices may become a significant variable affecting the August CPI. In July, apparel prices saw the largest decrease this year, and analysts are divided on whether prices will drop again in August, meaning that any significant fluctuation could impact the overall inflation reading.