Powell Confirms Rate Cuts Are Coming: Market Questions the Extent
1. Confirmation of Rate Cuts: Jerome Powell has officially confirmed that interest rate cuts are expected, with the Federal Reserve likely to announce them at the September meeting.
2. Rationale for Rate Cuts: Powell indicated that the decision to cut rates is driven by a decreased risk of accelerating inflation. He expressed confidence that the Consumer Price Index (CPI) is moving toward the Fed's 2% target.
3. Current Inflation Context: Despite Powell’s optimism, the latest CPI reading stands at 2.9%, which is still significantly above the Fed's target. This indicates persistent inflationary pressures.
4. Budget Deficit Concerns: The ongoing $1.8 trillion annual budget deficit contributes to a highly inflationary environment, complicating the inflation outlook.
5. Market Implications: As the Fed prepares for rate cuts in an inflationary context, assets with limited supply, such as Bitcoin, are expected to perform well. Conversely, those holding wealth in dollars may experience a decline in purchasing power.
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