Recently, many brothers asked me to talk about the pace of the Fed's interest rate cuts and the impact of the bull market in the cryptocurrency circle! Next, let's popularize a common sense. What data standards will the Fed meet before it will cut interest rates? Let me first tell you the answer: interest rate cut threshold = 4% + 2%

First explain what the interest rate cut threshold "4 + 2" is? Let everyone have an idea of ​​what the data must reach before the Fed can cut interest rates.

As shown in the figure below, in the nearly 40 years of interest rate cut cycles, whether it is a preventive interest rate cut or a relief interest rate cut, the market basically has a consensus-satisfying 4% + 2% is close to an interest rate cut.

Either the unemployment rate > 4% is used to "promote social employment" as the goal of interest rate cuts, or the core PCE ≈ 2% is used to "maintain price stability" as the goal of interest rate cuts.

It does not have to be completely lower than 2%, but the core PCE in the past interest rate cuts was basically not too far away from 2%. For reference, last month's core PCE = 2.82%, so it is still some distance away from the previous interest rate cut threshold.

On Friday night, the US April PCE price data was roughly in line with expectations. The annual rates of overall PCE and core PCE remained at 2.8% and 2.7% respectively, which is still a certain distance from the target level of 2%. The highlight of this data is the monthly rate of the core PCE price index, which recorded 0.2%, lower than the expected and previous value of 0.3%, and hit a new low since December 2023.

Then the next question is, some people will ask, is it generally the case that when interest rates are just beginning to be cut, the big cake and US stocks will fall instead, because the interest rate cut means that the economy is very bad? Asking such a question is pure novice. The consensus in the market now is that as long as the interest rate is cut, it is good news. The core assets of the US stock market, including the big cake, will usher in a bull market. The reasons are as follows:

There are two ways to cut interest rates. One is a defensive interest rate cut, that is, the Federal Reserve uses interest rate cuts in advance to relieve the pressure on the economy before the economy is damaged. The advantage of this is that the economy may not enter a recession.

The other is a remedy-the-fact interest rate cut, that is, when the economy has been damaged, the Federal Reserve begins to cut interest rates in order to curb the expansion of economic damage. Judging from the data of recent decades, the probability of the Fed choosing a defensive interest rate cut is still very low. After all, only by destroying the economy can inflation be reduced quickly.

But it is not impossible, so the market is now eager for the Fed to cut interest rates. However, as for the release of water, the probability of the former is very low. Now it seems that the probability of the latter is very high.

The interest rate cut itself will not directly help liquidity, but the interest rate cut is the last stage of the Fed's interest rate hike, which means that the interest rate hike cycle has ended and the tightening cycle has begun to relax. Moreover, if the damage to the economy is large, in order to make the economy recover as soon as possible, the Fed will mostly choose to release water, and releasing water is the beginning of a bull market.

To translate it in plain language, if there is a cigarette butt with sparks in the house, you just need to put some water on it to put it out quickly. But if the fire starts, the flames are so big that they burn the carpets and furniture, and the whole house is full of smoke, you have to go to the fire hydrant to open the big water stick and release water to put out the fire.

Then the question is, after the release of water, when will the core assets of the United States need to run away?

There is no good data on US employment. Either it is very bad now, which directly affects the price of the risk market and makes the price fall. This is very bad now, which means that the employment rate will rise and the unemployment rate will fall. This kind of bad is that the Fed's interest rate cut expectations will be delayed.

Another kind of bad is that it will be very bad in the future, but now it will have a price-promoting effect on the risk market, such as a decrease in employment rate and an increase in unemployment rate. This means that the probability of the Fed cutting interest rates will increase.

The essence of the latter is that the economy is getting closer and closer to problems, so the short-term rise is likely to bring about a big pit in the later period, and the short-term decline is likely to bring about a bigger pit in the later period.

So when the unemployment rate really exceeds 4%, the Fed starts to cut interest rates, and the interest rate cut cannot control the continued rise in unemployment, it is almost time to run.

If the data on Friday plays like this, it can only be welded at the current position and wait for the June data. If it continues to be so painless, the market will fluctuate in the short term without volume, and the copycat monster coins will fly around.

Let's start paying attention to next week's data:

6.3: US ISM Manufacturing PMI in May

6.4: US JOLTs job vacancies in April (10,000 people)

6.5: US ADP employment in May (10,000 people)

6.6: US initial jobless claims for the week ending June 1 (10,000 people)

6.7: US unemployment rate in May/US seasonally adjusted non-farm payrolls in May (10,000 people)

Among them, the non-farm data on Wednesday and Friday are more critical. The market now expects that the first interest rate cut will start in September.

Today's article is a bit confusing, but it is full of useful information. If you don't understand it, I suggest you read it several times and understand it repeatedly.

As I often say, we are not trying to predict the market. Prediction is always for the purpose of preparing for response. To make good investments, the fundamentals of the target, macroeconomic data, capital liquidity, position management, and risk control are all common sense that needs to be learned.