June 13 Macroeconomic data interpretation: Watch Lao Bao's live broadcast of "Practicing Tai Chi" Recommended reading: ★★★
Tonight, the macro big data thread has reached the third stage of Bao Shifu's speech. Previously, the CPI data was significantly positive. As a result, the dot plot shows that there will be only one interest rate cut this year, and the rate cut will be 25 basis points. Thereafter, the rate cut will be 100 basis points per year in 25 and 26. The positive CPI has been greatly weakened. Although the Fed officials adjusted the inflation rate in 2024 from 2.8 to 2.6, it is expected that inflation will fall faster, which has caused the market to discuss the possibility of a second interest rate cut this year, but we still have to see the results conveyed by Powell to us.
Let's take a look at the key points in Powell's speech:
1. The economic trend is in line with expectations.
2. Although inflation has decreased, especially the monthly inflation rate has performed well, there is still more confidence to support the interest rate cut. Inflation is still the focus. Today's CPI is an improvement, but it is not a reason to cut interest rates. If the economy continues to cool down and inflation continues to be stubborn, it is still necessary to maintain interest rates for a longer period of time.
3. Although the unemployment rate has reached 4% or even worsened, the Federal Reserve has a response strategy (directly eliminating the condition of lowering interest rates by eliminating the unemployment rate reaching 4%).
4. Compared with CPI, the Fed still attaches importance to PCE data. The PCE data is not good enough at present, especially the core PCE is not enough to support interest rate cuts, and the gradual slowdown of inflation requires a longer time to observe (a decrease in inflation for one or two months is not a reason to cut interest rates)
5. Employment is a short-term performance and is not enough to prove much. Only if similar employment data appears or appears continuously will it attract the attention of the Federal Reserve.
6. Today's CPI is within the Fed's expectations.
7. Although the employment data has slowed down, Powell feels that the employment data is still strong, especially in terms of wages. The Federal Reserve is more concerned about the stubborn problem of wages in terms of employment.
8. Although the current dot plot shows a rate cut, Powell has not cut off the market's fantasy and still left an opening for the market to imagine. (Shameless!)
9. The Federal Reserve believes that the strong real estate market can be controlled, and the Federal Reserve is also doing so. The banking industry is stable (the subtext is that the banks are stable and there is no need to worry about the continued high interest rates).
10. Japan's interest rate hike and the Eurozone's interest rate cut will not affect the Fed's decision (subtext: I would rather die than let my friend die)
Summarize:
Powell is still a master of Tai Chi, but several key points can be clearly heard in his speech this time.
1. In terms of employment, the unemployment rate is no longer the focus, but wages are. As the unemployment rate rises, wages should fall, but currently wages have become a chronic problem, and wages are also one of the key sources of inflationary pressure.
2. The positive impact of CPI in inflation data is still not as good as that of PCE. The Federal Reserve is still talking about PCE. This is the same as what I guessed last night. If CPI is positive, it is very likely that Bao will use PCE as an excuse to break through.
3. Whether it is one rate cut or more rate cuts, this dot plot cannot represent everything and it will still be adjusted based on the data. To put it bluntly, it is to weaken your overly optimistic expectations for rate cuts and to keep you from getting discouraged. This is a typical "scumbag" rule.
4. Japan's interest rate hike, Canada and Europe's interest rate cuts will not force the Federal Reserve to cut interest rates. At least Powell will not admit that he is affected.
5. The mention of technology companies and the stability of the banking industry, combined with the Federal Reserve's economic expectations in the early morning, is overall to increase confidence in the US economy, show the possibility of a soft landing of the US economy, increase confidence in the US dollar, reduce the decline of US dollar capital, and the year-on-year decline in gold prices, which is one factor.
Influence:
One rate cut, combined with Powell's speech, basically did not release any positive sentiment, and the overall negative trend tonight was. At the same time, Powell's speech made the foreshadowing of the 4% unemployment rate and the decline in inflation more stringent. The premise of considering the worsening unemployment rate is also to consider the decline in wages, and the decline in CPI is also to consider PCE. This adds more restrictions to the expectation of promoting rate cuts.
Compared with the same period last year, the risk market will experience an emotional decline. The US stock market will still have its own strong narrative AI, and technology companies will drive the job market. Bao also said that there will be more AI narratives in the future. After the crypto market falls, it will face the volatility. Moreover, Bao also showed in his speech that a single positive data is not enough to promote interest rate cuts, so it may be difficult for a single data to bring more positive sentiment of interest rate cuts to the market in the future.
At this point, the three phases of the macro data thread on June 12th have officially ended.
Let's wait and see the market data tomorrow. Thanks to @Phyrex_Ni for providing real-time live data support.