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Interest Rate Cut Expectations Waver Again: June Fails, July Becomes Key?

Will the market's three bets come true?

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Significant Reduction in Interest Rate Cut Expectations

✦ From 6-7 cuts at the beginning of the year down to only 3, reflecting sticky inflation and economic resilience.

✦ The timing of the first rate cut may be delayed: the market's mainstream expectation has shifted from June to July, as the Federal Reserve needs more time to confirm inflation trends.

Key Driving Factors

✦ Strong Economic Data: Employment, retail, and other indicators continue to exceed expectations, reducing the necessity for emergency easing.

✦ Rising Inflation Risks: CPI/PCE data has fluctuated since March, with core inflation still above the 2% target.

✦ Policy Uncertainty: New tariffs may raise import costs, further compressing the space for interest rate cuts.

Potential Market Impact

✦ Asset Prices: U.S. Treasury yields fluctuate at high levels, growth stock valuations are under pressure; the dollar remains strong.

✦ Real Economy: Delay in the decline of corporate financing costs, ongoing pressure in high-leverage industries.

✦ Policy Game: If the economy deteriorates rapidly (e.g., unemployment rate exceeds 4%), it may trigger an emergency shift by the Federal Reserve.

Future Observation Focus

| Indicator | Threshold and Signal Significance |

|--------------|----------------------------------------------------|

| Core PCE | Can it stabilize below 2.5%? |

| Non-farm Jobs | 4% unemployment rate as a potential trigger for policy shift |

| Geopolitical Policy | Tariffs/supply chain effects on secondary inflation transmission |

Conclusion

The market has priced in a "higher for longer" expectation, but there are still uncertainties regarding a rate cut in July.

⤷ Upside Risk: Weak June data (e.g., CPI/non-farm weakness) may prompt action as early as June.

⤷ Downside Risk: Inflation rebound or geopolitical conflicts could delay rate cuts until Q4.

(Watch closely for speeches from Federal Reserve officials and CPI data on June 12)