The big news is here. Tonight's crucial speech by Powell at dawn: is he hawkish or dovish? This question is as simple as how to put an elephant in a refrigerator. Let's take a look at the forward predictions!
The market believes that the probability of a rate cut in May is only 3%. Due to last week's release of the U.S. non-farm payroll data showing an increase of 177,000 jobs, far exceeding expectations, the probability of a rate cut in June is now only 30%. The next rate cut is likely to come in July, so what are the highlights of this May interest rate meeting?
Let's see if the Federal Reserve will tell everyone what the prerequisites for a rate cut are. The answer to this question is just like how to fit an elephant into a refrigerator, it can be broken down into three steps.
Step one: the Federal Reserve needs to see a significant slowdown in U.S. consumer data or a sharp rise in the unemployment rate. However, in the past month, neither of these figures has shown a slowdown. Not only did domestic demand grow by 3% in GDP, but the non-farm payroll data also far exceeded expectations.
Assuming step one can be achieved, with a smooth cooling of the economy, then in step two, the Federal Reserve also needs to see whether inflation has rebounded due to tariffs. If tariffs lead to a rebound in inflation in June and July, the Federal Reserve must convince itself that this is a temporary inflation, and that inflation will not remain high in the long term. This is akin to opening the refrigerator door and putting the elephant inside.
Both steps are essential, and right now, we see that the Federal Reserve hasn't even observed step one, which is the economic slowdown. Let alone believing that inflation is temporary. Powell's speech at dawn is more likely to warn the market that the Federal Reserve will not take action prematurely and will not provide the market with any expected path for rate cuts.
Therefore, tonight Powell is likely to deliver a hawkish speech. Although there is positive stimulus today, Beijie reminded Ray to reduce positions yesterday morning, and this afternoon's rebound saw a reduction in some Pepe positions. Everyone must pay attention to risk. If there is unexpected good news, we can enter the market then; we can enter and exit as needed.
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