Let's break down some core details from yesterday's Federal Reserve FOMC meeting.
First, against the backdrop of Trump publicly urging rate cuts again, Powell emphasized that the Federal Reserve is not influenced by politics.
Of course, the overall market remained relatively calm, still experiencing a rise followed by a decline, with the overall sentiment showing a cautious wait-and-see attitude.
Let's break it down, with the key conclusions at the end:
1. Interest Rates
12 votes unanimously maintained the 4.25-4.50% interest rate, keeping rates unchanged for four consecutive times, continuing to observe inflation and employment turning points (consistent with my previous analysis).
2. Dot Plot
The median for the end of 2025 is 3.9% (= two 25 bp cuts), with only one more cut each in 2026-27.
The two rate cuts remain unchanged, but internal divergences are beginning to appear: the number of members supporting no cuts is increasing, showing a certain hawkish tendency.
3. Tariff Impact
This is the first time the Federal Reserve has explicitly listed tariffs as an inflationary risk in official documents. Due to pre-import stockpiling and fluctuations in net exports lowering Q1 GDP, prices may rise in the future.
4. GDP 1.4%, Unemployment Rate 4.5%, PCE 3.0%
The economy is beginning to lean towards stagflation, with a slowdown in economic growth, rising prices, and marginal loosening in employment.
5. Balance Sheet
The process of balance sheet reduction remains unchanged, and there has been no discussion of slowing the pace, maintaining the monthly cap.
In summary, three core conclusions:
- The probability of starting a 50bp arbitrage rate in September (cutting rates twice by 25 each) is the highest, unless inflation caused by tariffs exceeds expectations and becomes sticky.
- The probability of recession is currently very low; growth is slow but at least positive. The main concern about not cutting rates now is price stickiness and a cooling labor market.
- Pay attention to the core PCE, ISM services price components, and Employment Cost Index (ECI) for July-August, which relate to whether there can be two rate cuts this year.