1. Core CPI declines: The U.S. core CPI fell to a three-year low in May, lower than expected, and market expectations for interest rate cuts increased.
2. Interest rates remain unchanged: The Federal Reserve decided to keep interest rates unchanged for the seventh consecutive time, which was in line with market expectations.
3. Dot plot forecast: The Fed’s dot plot shows that only one interest rate cut of 25 basis points is expected in 2024, while four interest rate cuts are expected in 2025.
4. Inflation moderation: Although inflation has declined significantly, it remains above the Fed's target. The Fed may not cut interest rates until inflation is sustainably lowered to 2%.
5. Monetary policy adjustment: The Federal Reserve said that it is not yet time to announce the date for a rate cut and will adjust monetary policy based on economic conditions.
The lower-than-expected U.S. CPI has stimulated market enthusiasm and demonstrated the U.S.'s ability in expectation management. However, the Fed has not shown any urgency in cutting interest rates, which is mainly based on the following important indicators:
1. Inflation rate: The inflation rate has not yet fallen below 3%, which is still far from the Fed’s 2% target.
2. Unemployment rate: The unemployment rate has not risen significantly and the job market remains strong.
3. Financial system conditions: The financial system is not facing a crisis. Instead, there may be a risk of overheating due to excessive money supply. This is related to the market’s neglect of bubbles and is one of the reasons for the continuous occurrence of financial cycles.
Although Federal Reserve Chairman Powell's speech was not as dovish as market expectations, it did not have a significant impact on the overall market trend.