With the latest release of the US CPI and PPI data, the market has generally formed a strong expectation that the Fed's interest rate cut in September is almost a foregone conclusion, and the probability is almost 100%. However, this seemingly certain expectation is still shrouded in a shadow of uncertainty after the Fed's meeting minutes to be released next week and Powell's speech at the global central bank annual meeting. What is more alarming is that there may be unknown "black swan" events hidden in the Fed's meeting agenda in the next month, which may break the existing market expectations at any time.
Specifically, the year-on-year growth rate of the US CPI in July was 2.9%, slightly lower than the market's original forecast of 3%, and increased by 0.2% month-on-month, which was in line with market expectations. It is worth noting that the CPI data for the previous month also showed a rare decline. In terms of core CPI, the year-on-year increase has fallen back to 3.2%, the lowest level since the beginning of 2021, further approaching the 2% inflation target set by the Federal Reserve, and it can even be said that it has entered this target range.
This series of data undoubtedly provides strong support for the Fed's interest rate cut, especially considering Powell's recent dovish turn in his remarks, suggesting that interest rate cuts do not need to strictly wait for inflation to fully fall back to the 2% level. Therefore, from a logical analysis, a rate cut in September seems to be a natural thing.
However, it is in this seemingly self-evident situation that we need to be more alert to potential variables. The Federal Reserve has always been good at avoiding monotonous market expectations by creating market suspense, so we cannot rule out the possibility that the September rate cut may be unexpectedly delayed.
Looking back at history, the market has predicted the timing of the Fed's interest rate cuts many times in advance, but they have repeatedly failed in the end, especially the predictions of interest rate cuts from the end of last year to the first half of this year, which ultimately failed to materialize. Therefore, if the interest rate cut is postponed again, it will not be too surprising.
In addition, it is worth noting that in order to ease the pressure on the government and the Federal Reserve, even the founder of the Sam Rule, Claudia Sam, publicly stated that the current US economy has undergone profound changes, the Sam Rule is no longer applicable, and economic recession is not inevitable. This statement may reflect the Federal Reserve's efforts to avoid market pressure from having an undue impact on its policy decisions, in order to maintain its authority and the interests of the interest groups behind it.
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