The U.S. August CPI report showed headline inflation at 3.4% year-over-year and core CPI at 2.4%, broadly in line with market forecasts. However, this has sparked a puzzling market reaction: rate hike odds jumped from 70% to 90%, yet gold and tech stocks rallied sharply despite the prospect of imminent Fed tightening.

A closer look reveals that while the housing component, which contributes roughly 43% to CPI, showed a slowdown, the overall core CPI held steady from the previous month. Meanwhile, real weekly wages ticked up from 0 to 0.1%, signaling early signs of wage pressure. Combined with a stronger-than-expected core CPI month-over-month reading, this suggests consumer prices are still climbing at the demand level. Following the data release, markets pushed the probability of a September Fed rate hike to 90%—but instead of falling, gold rallied and tech stocks strengthened, driven by a mispricing of real interest rates and a "bad news exhausted" dynamic.

CPI Breakdown: Housing Leads Decline, Core Strengthens, Wages Show Uptick

The August CPI year-over-year reading landed within the expected range, suggesting on the surface that inflation has temporarily stabilized. But a segment-by-segment analysis tells a more nuanced story than simple disinflation. The housing component, which accounts for about 43% of CPI, decelerated to 3.0% year-over-year from 3.2% previously, yet core CPI did not decline. Meanwhile, core prices excluding energy and food strengthened on a month-over-month basis, indicating that the prices consumers pay for goods and services continue to rise, with underlying inflationary pressures far from消退 (dissipated).

On the labor front, real weekly wage growth improved from 0 to 0.1%, showing an upward bias. While this is just a single-month marginal shift, when combined with firmer core CPI momentum, markets are growing concerned that sustained wage increases could feed into the services sector, entrenching inflation stickiness. Energy CPI surged 16.3% year-over-year, reflecting the ongoing impact of Middle East conflict-driven crude price spikes, which continues to lift the headline CPI. Taken together, this data has prompted markets to raise the probability of a September Fed rate hike to 90%, with traders pricing in a likely rate increase at the upcoming FOMC meeting.

Contrarian Market Move: Why Gold Rises and Tech Stocks Rally Despite Rate Hike Expectations

Under conventional logic, rising rate hike expectations should push nominal yields higher, weighing on long-duration assets—gold and high-valuation tech stocks would typically weaken. Yet this time, markets moved in the opposite direction. One key driver is that rate hike expectations were already priced in ahead of the data; the release merely confirmed what the market had anticipated. In the days before the CPI report, the market had already priced in inflation resilience, with 2-year and 10-year Treasury yields rising across the board while gold and tech stocks sold off. By the time the CPI was officially released and rate hike odds climbed to 90%, it was merely the realization of earlier trading logic—a classic "bad news exhausted" scenario.

Additionally, as noted earlier, the CPI data fueled higher forward inflation expectations. Since markets had anchored nominal yields—as reflected in Treasury rates—to a fixed range due to the exhaustion of bearish catalysts, the trend in real interest rates (nominal yield minus inflation expectations) declined rapidly as inflation expectations rose. Gold, as a zero-yield long-duration asset, and tech stocks, whose valuations depend heavily on discounted future cash flows, are both highly sensitive to real rates. When real rates fall, the opportunity cost of holding gold decreases, and the present value of tech companies' future cash flows rises, prompting both gold and tech stocks to rebound in tandem. Simply put, while saving money may earn attractive nominal interest, the pace of purchasing power erosion is even faster—money becomes worth less over time—making high-growth quality assets or hard assets with fixed supply comparatively more valuable.

Deeper Logic: In an Election Cycle, This Rate Hike Reinforces Confidence in the Fed's Inflation Fight

With the U.S. presidential election approaching, markets have long worried about potential political interference in the Federal Reserve, casting doubt on central bank independence. Against this backdrop, if the Fed decisively opts for a rate hike despite visible inflation resilience, it would demonstrate to markets that monetary policy remains anchored to price stability and is not captured by the electoral cycle—bolstering long-term confidence in U.S. inflation control. At the same time, robust employment data and continued corporate hiring suggest that corporate earnings fundamentals remain resilient and capable of withstanding higher interest rate conditions. This reduces the tail risk of a deep recession triggered by high rates, lowering the risk premium that markets demand for holding nominal assets. With nominal yields effectively anchored and inflation expectations climbing, the opportunity cost of holding long-duration assets like gold and tech stocks falls sharply—ultimately driving the paradoxical synchronized rally in asset prices following this data release.

Summary and Technical Analysis

Currently, markets price a 90% probability of a September rate hike, with the base case being a single increase at the upcoming meeting. Market focus has shifted from "whether to hike" to "what comes after"—whether further tightening is needed and how long high rates will persist. As discussed previously, regardless of the CPI outcome or the rate decision, gold remains a strategic allocation opportunity, and the underlying logic is unchanged. Furthermore, as noted in prior analysis, U.S. Treasuries will not face unlimited selling; once the U.S. begins to emphasize growth narratives and demonstrates its commitment to fighting inflation and maintaining central bank independence, Treasuries remain an essential allocation for many countries and institutions. Additionally, government intervention has already established a policy floor.

Moreover, there are limits to how much further rates can rise. If the U.S.-Iran conflict persists indefinitely, rate hikes cannot conjure oil supply and cannot resolve imported inflation. Instead, restoring Fed independence would have a more significant impact on lowering rates for markets—potentially bringing cheaper borrowing costs. With the U.S. AI boom still requiring capital support and the need to nurture the stock market ahead of midterm elections, how much room is there truly for additional hikes?

On the technical front, the double-bottom pattern is asserting itself, with gold seeking to enter a higher trading range for consolidation, currently facing resistance at the base of that range. As of 21:37 Beijing time, spot gold was trading at $4,392 per ounce.