Market analysis of interest rate cut expectations was significantly influenced by the latest Consumer Price Index (CPI) data, which showed a major shift in attitudes.
Before the June CPI data was released, the probability of a first interest rate cut in September was expected to be about 71.8%. After the data was released, this probability soared to 88.1%.
On the surface, 71.8% is already quite high. Why is there a reversal?
In-depth analysis shows that the key to this change lies in the market's consistent expectations for future interest rate adjustments.
According to past Fed interest rate policies, once interest rates are cut, they are usually made continuously rather than intermittently.
For example, if the September interest rate drops to 5% to 5.25%, it indicates that the November interest rate may further drop to 4.75% to 5%.
However, the probability of subsequent interest rate cuts shows clear inconsistencies. Before the CPI data was released, the probability of a first interest rate cut in November was only 53%, showing the market's uncertainty about what will happen after September.
Overall, after the CPI data was released, market expectations for the first interest rate cut in September increased significantly. This analytical method emphasizes the observation of interest rate expectations at consecutive points in time, more effectively preventing the misleading of single-month expected data.
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