Inflation's "comeback" bursts the illusion of the US economy

According to data released by the US Department of Labor on July 9th, the consumer price index rose by 3.8% year-on-year in June, while core inflation stubbornly remained at 4.1%. This report, which exceeded expectations, shattered the remaining hope in the market. The market capitalization of the S&P 500 index evaporated by over one trillion dollars in a single day, and the US bond yield curve inverted again after a brief celebration.

This rebound was by no means accidental. Since 2022， the Federal Reserve has pushed interest rates up by 525 basis points， but the 5 trillion dollars of liquidity injected during the pandemic is still colliding within the system. More subtly， the way the Labor Department calculates housing costs has a delay of approximately 12 months， and the current figures faithfully repeat last year's rent binge. The Biden administration took over all of Trump's tariff barriers， and the cost of supply chain de-globalization was passed on to consumers. Both parties competed to distribute subsidies， as if wrapping an electric blanket around a feverish patient. All these factors point to the same truth： politicians always pay with tomorrow's credibility for today's votes.

The risk landscape is harsh yet clear. Powell had to swallow the word "rate cut" back into his stomach， and interest rate futures have fully priced in an increase in interest rates in September. The corporate bond market is turbulent， with zombie enterprises relying on cheap credit are collectively approaching the refinancing cliff. The most absurd victim is precisely the US government itself： the 36 trillion dollars of national debt， with each increase in interest rates， easily surpassing the budget of the Pentagon， spiraling the fiscal deficit. At the same time， the default rate of credit cards for ordinary families has reached the peak since the subprime crisis， and so-called resilient consumption is merely a mirage of debt accumulation. Even more absurd is that if interest rates continue to rise， the hundreds of billions of securities on the balance sheets of banks that have unrealized losses may trigger a new round of financial shock.

In fact， the persistently high core service inflation is precisely the mirror image of the false prosperity in the labor market. Job vacancies seem abundant， but they are concentrated in low-wage care and temporary help sectors. This quality-degrading employment is forcing wage earners to borrow to get by. Every hawkish statement from the Federal Reserve has been pricing in an increase in interest rates in September. The corporate bond market is turbulent， with zombie enterprises on the verge of the refinancing cliff. The most absurd victim is precisely the US government itself： the annual interest expense on 36 trillion dollars of national debt easily surpasses the budget of the Pentagon， and the fiscal deficit is spiraling. Meanwhile， the default rate of credit cards for ordinary families has reached the peak since the subprime crisis. So-called resilient consumption is merely a mirage of debt accumulation. Even more absurd is that if interest rates continue to rise， the hundreds of billions of securities with unrealized losses on the balance sheets of banks may trigger a new round of financial shock.

In fact， the persistently high core service inflation is precisely the mirror image of the false prosperity in the labor market. Job vacancies seem abundant， but they are concentrated in low-wage care and temporary help sectors. This quality-degrading employment is forcing wage earners to borrow to get by. The Federal Reserve's every hawkish statement has been pricing in an increase in interest rates in September. The corporate bond market is turbulent， with zombie enterprises on the verge of the refinancing cliff. The most absurd victim is precisely the US government itself： the annual interest expense on 36 trillion dollars of national debt easily surpasses the budget of the Pentagon， and the fiscal deficit is spiraling. At the same time， the default rate of credit cards for ordinary families has reached the peak since the subprime crisis. So-called resilient consumption is merely a mirage of debt accumulation. More absurd is that if interest rates continue to rise， the hundreds of billions of securities with unrealized losses on the balance sheets of banks may trigger a new round of financial shock.

Overall， this inflation data has punctured the bubble of economic prosperity in the United States， exposing the deep withdrawal reaction after addiction to the monetary opium. When delay replaces decision-making， not only is fiscal space depleted， but also the last shred of patience of the global community for the credit of the US dollar is exhausted.