After reviewing the detailed CPI breakdown, here’s the market’s interpretation: rate hike expectations have been moved up to September, but only one hike is expected, not a full rate hike cycle. 1. The main driver of the core inflation is core services (0.327%) rather than core goods (0.106%). Tariff-sensitive items like 3 clothing categories +0.017%, home appliances −0.083%, entertainment +0.004% are all relatively low. This indicates that the high core inflation isn’t a one-time tariff shock, and the 0.29% isn’t just noise. Meanwhile, car insurance −0.751% and medical services −0.248% both dropped but didn’t pull down the core inflation. This suggests underlying inflation might be running hotter. 2. Overall inflation at 0.4%—more than one-third of it comes from gasoline, which is oil price transmission. So this part can be set aside for now. 3. Within the core inflation, housing heat is mainly driven by hotels +0.657%, while overall housing isn’t hot. Both rental measures are declining, which might be the only dovish signal: (OER 0.260% → 0.186%, primary residence rent 0.256% → 0.174%) (FED cares about rent stickiness.) 4. Why did the market dip first and then rebound? 1) The initial drop was due to quantitative selling—core inflation at 0.3% vs. the 0.2% expectation. 2) Rate hike expectations haven’t decreased. From the release until now, September rate hike expectations have increased. However, expectations for October and December haven’t risen. From the market’s perspective, the single rate hike originally spread across September, October, and December has now been priced more firmly into September. (Previously, the market priced in at least one hike across 9/10/12 months; now it’s more certain that this hike will happen in September.) 3) So the market’s understanding is: this month’s inflation heat is confirmed -> one rate hike in September is acceptable. But the market doesn’t agree with inflation taking off again and triggering a full rate hike cycle. The reasoning is that both rental measures are cooling, core goods have cooled for the second consecutive month, and there’s no tariff transmission. 4) In summary: this is a core inflation that’s hot but not exaggerated, cleanly hot (no small items or tariff noise), and rent is declining. Therefore, the market expects the rate hike to be moved up to September but doesn’t anticipate a prolonged rate hike cycle.