The market is starting to expect interest rate cuts only in December, but I still think the possibility of a rate cut in July is quite high.

The U.S. first quarter GDP is -0.3, and there are many interpretations of this data, which I won't elaborate on. A recession is confirmed when there are two consecutive quarters of negative GDP growth; inflation is still evident. Currently, it seems that stagflation in the U.S. is basically unavoidable. A brief deduction of U.S. stagflation: early data shows that inflation has been controlled and is steadily decreasing. Normally, the Federal Reserve should gradually cut interest rates; however, the tariff war with China and the aforementioned inability to find a complete substitute for Chinese manufacturing in the short term makes decoupling impossible. High tariffs will inevitably lead to imported inflation in the U.S. Trump seems to want to make life harder for the American people while planning tax cuts to offset this rising cost. At present, the gap between Trump's vision and reality is still quite large. Tariffs have already eased, but we haven't seen any signs of tax cuts being implemented. Inflation means the Federal Reserve needs to raise interest rates, and recession means the Federal Reserve needs to cut interest rates.

Currently, inflation itself has not reached 2%, and combined with tariffs, it can only be higher. With negative GDP growth in the first quarter and expectations of a recession, stagflation is forming, leaving the Federal Reserve in a dilemma. Under ideal conditions, we can simplify this into a mathematical problem: one pipe is draining water, and another is filling it; how can we empty the pool? Normally, we should first shut off the filling pipe, but we can’t do that, so we can only increase the drainage rate, ensuring the outflow exceeds the inflow, and then gradually it will be emptied. The Federal Reserve is in a similar situation; it hopes that while cutting rates to stimulate the economy, the economic growth rate will exceed the inflation rate. However, reality is not an ideal model. Ultimately, the Federal Reserve still needs to cut interest rates because there are no better options, and there are also U.S. Treasury bonds to consider. If they can delay for a day, they will; if they can’t hold it back, then they will prioritize the immediate situation.

From the deduction of the Federal Reserve cutting rates, we need to further clarify when the rate cuts will happen. In the current situation, the essential data has basically been released, allowing for sufficient observation of the continuous changes between the data. With data as a basis, the Federal Reserve can then take appropriate actions. Moreover, a large amount of U.S. Treasury bonds will mature in June, so I personally bet on a rate cut in July. Additionally, this involves market conditions and liquidity. A rate cut is not the final solution; QE plus rate cuts is the ultimate goal, but the timing for this is currently hard to determine, so we will observe as we go.