Federal Reserve Policy Trends

At a time when the global economy is changing rapidly, the Fed's every move affects the nerves of the global market. Recently, speculation about the Fed's upcoming interest rate cut has been rampant. This signal not only indicates a potential shift in global monetary policy, but also poses new challenges and opportunities to the global economy. As a traditional means of stimulating economic growth, interest rate cuts are often adopted when economic growth slows down and inflationary pressures ease.

At present, the pace of global economic recovery is uneven, trade tensions continue, and the uncertainty brought by the COVID-19 pandemic has made the Federal Reserve face the arduous task of balancing economic growth and inflation targets. The rising expectations of interest rate cuts are precisely the reflection of the Federal Reserve's attempt to boost market confidence and promote economic growth through a more relaxed monetary policy environment after weighing the pros and cons.

Recently, expectations for the Federal Reserve to cut interest rates have increased significantly.

This trend not only affects the U.S. economy and financial markets, but also has attracted widespread attention and discussion around the world. As the Fed continues to release signals of policy adjustments, the market generally expects the Fed to implement interest rate cuts in the near future to cope with challenges such as slowing economic growth, easing inflationary pressures, and uncertainty in the job market.

From 2022 to 2023, the Federal Reserve took a series of interest rate hikes to curb high inflation, pushing the target range of the federal funds rate to a historical high of 5.25% to 5.50%. However, with the release of a series of economic data, especially the rise in the US unemployment rate, the decrease in new jobs, and the easing of inflationary pressure, the market's expectations for a shift in the Fed's policy have gradually increased.

In August this year, the U.S. Bureau of Labor Statistics released a preliminary estimate of the benchmark revision of non-farm employment data.

In August this year, the U.S. Bureau of Labor Statistics released a preliminary estimate of the benchmark revision of non-farm employment data, which lowered the total number of new non-farm jobs from April 2023 to March 2024 by 818,000. This downward revision is the largest since 2009.

Previous data from the U.S. Bureau of Labor Statistics showed that the United States added 2.9 million non-farm jobs in the 12-month period from April 2023 to March 2024. However, the revised data released by the U.S. Bureau of Labor Statistics on August 21 showed that the number of new jobs in the United States during this statistical period was 818,000 less than previously estimated. This caused the total employment growth (excluding farm employment) during the 12-month statistical period to drop from the previous estimate of 2.9 million to about 2.1 million, and the average monthly net new jobs during the statistical period decreased by about 68,000.

These data may amplify the basis points of the Fed's interest rate cut. According to CME's "Fed Watch", the probability of the Fed cutting interest rates by 25 basis points in September is 55%, and the probability of cutting interest rates by 50 basis points is 45%; the probability of the Fed cutting interest rates by 50 basis points by November is 32.1%, the probability of cutting interest rates by 75 basis points is 49.2%, and the probability of cutting interest rates by 100 basis points is 18.8%.

Since the second half of 2024, the Federal Reserve’s interest rate cut has attracted global attention.

Many economic institutions are speculating that the Fed will cut interest rates soon. However, the Fed is like a young girl, hiding her face and never giving a clear signal.

However, judging from the recent macro data of the United States, the probability of the Federal Reserve cutting interest rates in September is already very high. The Federal Reserve will hold an interest rate meeting from September 17 to 18, 2024, and will decide whether to cut interest rates at that time. At present, the world has high expectations for this interest rate meeting of the Federal Reserve, and many institutions predict that the Federal Reserve is likely to cut interest rates. According to CME forecasts, the probability of the Federal Reserve cutting interest rates by 25 basis points in September is 61.0%, and the probability of cutting interest rates by 50 basis points is 39.0%, and there may be multiple interest rate cuts this year.

The big non-farm data will be released in the evening!

The release of the non-agricultural data will completely fuel the Fed's further actions, and these data may amplify the Fed's basis for interest rate cuts. Recently, Fed Chairman Powell said at the Jackson Hole Global Central Bank Annual Meeting: "Now is the time to adjust policy. The timing and pace of interest rate cuts will be affected by the latest data, changes in the economic situation and risks." As soon as this statement came out, the market generally expected that the Fed would announce its first interest rate cut in September.
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