One CPI report sent global markets “crashing first, then surging”—what exactly happened?
On the evening of September 11 Beijing time, the U.S. August CPI data was released. The market first plunged and then surged, producing an extremely rare V-shaped reversal. Gold instantly plunged below $4,300, then violently rallied by more than $100, ultimately rising nearly 2% and returning above $4,400. The U.S. Dollar Index surged before retreating, while U.S. Treasury yields briefly touched 5% before plunging rapidly.
Inflation clearly exceeded expectations, so why did the market fall first and then rise? What exactly were traders battling over?
Today, we will explain the matter thoroughly through three lines of reasoning.

The first line of reasoning: The data itself—core CPI “crossed the line”
First, the data: Headline CPI rose 3.4% year over year and 0.4% month over month, both in line with expectations. Core CPI rose 0.3% month over month, above the expected 0.2%, marking the largest monthly increase since May this year. Core CPI excludes food and energy and better reflects underlying inflationary pressure.
What does 0.3% mean?
The framework previously established by institutions was clear: if core CPI rises 0.1% month over month or less, the Federal Reserve remains on hold; at 0.3% or above, a rate hike is basically certain. The data landed exactly at 0.3%, hitting the rate-hike “trigger line.” The main drivers of the rise in core CPI were accelerating housing prices, a 2.3% month-over-month jump in communications prices, and a 2.7% increase in airfares.

The second line of reasoning: Why did the market “crash first and then surge”?—The bad news was fully priced inAfter the data was released, the market’s first reaction was standard: rate-hike expectations intensified, the dollar rose, gold fell, and Treasury yields climbed. But the market quickly reversed course. Gold rebounded more than $100 from its low of $4,290, while the U.S. Dollar Index surged and then turned negative.
There were two main reasons:
First, the “shoe dropping” effect. Over the past week, U.S. PPI exceeded expectations, oil prices broke above $100, and nonfarm employment was unexpectedly strong. The market had already been trading ahead of the negative factor of “sticky inflation.” When CPI was actually released, although core CPI slightly exceeded expectations, the risks that had previously caused concern were already out in the open, instead creating a sense of relief.
Second, large-scale buying was triggered after the 10-year U.S. Treasury yield touched 5%. For the U.S. Treasury, 5% is a psychological life-or-death threshold. Once it breaks decisively, global funds will reassess the interest costs of America’s massive debt, and valuations across all assets will have to be rewritten. As yields approached 5%, long-waiting buyers decisively entered the market and forcibly pushed yields back down. The 2-year yield was still rising, indicating that near-term rate-hike expectations had not eased, but long-term rates were defended.

The third line of reasoning: Cross-checking the probability of a rate hike using Treasuries and the yenLooking at CPI alone could lead to a misjudgment. Combining signals from the Treasury and yen markets provides a more comprehensive picture.
Treasury market: The curve “bear-flattened,” sending a strong rate-hike signal. The 2-year Treasury yield, which is most sensitive to the policy rate, rose to around 4.64% after CPI; the 10-year yield briefly touched 5% before falling back to around 4.92%. Short-term yields rose more than long-term yields, forming a typical “bear flattening” pattern—the market believes the Federal Reserve will be forced to tighten monetary policy in the near term.
Yen market: The Bank of Japan is also raising rates, putting carry trades at risk of reversal. The dollar-yen exchange rate recently fell to around 153, reaching a seven-month low. The market has largely priced in expectations that the Bank of Japan will raise rates by 25 basis points to 1.25% on September 17–18, with the probability as high as approximately 97%.
What does this mean? The “carry trade” in which global investors borrowed cheap yen to buy dollar assets is now facing pressure from narrowing U.S.-Japan interest-rate differentials. Once large-scale unwinding occurs, it could trigger a global liquidity crunch. This is a more far-reaching impact than a single CPI report.
Overall rate-hike probability: After the CPI data was released, CME FedWatch showed that the probability of a September rate hike briefly surged to 91.6%, up 33 percentage points from the previous day, before stabilizing above 85%. Goldman Sachs also urgently revised its forecast from “unchanged” to “a 25-basis-point rate hike in September.”

Summary
The extreme volatility on the evening of September 11 was essentially the market swinging violently between “sticky inflation requires rate hikes” and “rate hikes could crush the economy.” The data itself was negative, but the market had already priced it in; funds defended the 5% Treasury yield threshold; and a Japanese rate hike tightened global liquidity from another angle. The Federal Reserve’s rate decision on September 17 will be the next key juncture. Whether it raises rates in line with expectations or withstands the pressure and remains on hold will determine whether this bout of volatility marks the beginning of a trend or merely another brief bout of noise.

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