Regarding the Fed's interest rate cuts, I've been steadfast since the beginning of the year: the Fed is committed to cutting rates before September 30th of the US fiscal year, and a major announcement might come as early as this month's meeting!
Why are they so certain? Since the start of Trump's indiscriminate tariff war on April 2nd, the US dollar index has plummeted from 109 last year to 96, a slide like a slide. U.S. Treasury yields, both long and short, have finally begun to recover after a period of volatility. The July CPI didn't dare to falter during the tariff negotiations, and the PCE also followed expectations. While the CPI was a few tenths of a percentage point higher than the PCE, those in the know understand that the 30% sampling difference between the two indicators is evident in businesses and governments. The PPI signaled this long ago—Wall Street is focused on the CPI, the Fed is focused on the PCE, and now both sides are pretty much on the same page.
Looking at the consumption data, the decline is stark, and household income has seen its biggest drop since 2021. Why hold on at this critical juncture? Powell keeps saying the impact of the tariff war shouldn't be underestimated, but who doesn't know he's clearly on the inside? The data now provides ample latitude, allowing for both easing tensions with Trump and a logical rate cut.
To put it bluntly, I'm betting on a rate cut as early as this month's meeting, and no later than before the end of the fiscal year in September—I'm sticking with this call!
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