The Federal Reserve, Tariffs, and the U.S. Economy: An Absurd Farce!
The Federal Reserve plays expectation management like a monkey show. Just as the market was certain of a rate cut in September, champagne was ready to celebrate, but when Powell spoke, the probability of a rate cut plummeted. The non-farm data was even harsher, with over 250,000 jobs cut in the previous two months, the worst performance outside of the pandemic, shattering the illusion of a 'strong U.S. economy.' Wall Street elites must be quite shaken by this roller coaster market.
When everyone thought a September rate cut was inevitable, Morgan Stanley's Carpenter poured cold water on it, and Powell and Williams were vague, stating that whether there would be a rate cut in September would depend on subsequent data, with this week's CPI data being the first hurdle. The key question is, why is the blood from the tariff's big knife cutting prices flowing so slowly?
The June CPI hinted at tariffs pushing up prices, but Morgan Stanley warned not to be misled. Tariffs are toxic and take time to manifest; the global supply chain is like an injured beast, and only after struggling will the inflation wolf show its face.
Before the new tariffs on August 1, Morgan Stanley dug deep into the supply chain and found a significant gap between official tax rates and actual tax collections, which is quite ironic. During the policy window, importers crazily 'smuggled' and hoarded goods; shipping was slow, and supermarket product costs lagged; companies played 'the golden cicada shedding its shell' to avoid taxes, causing chaos in the supply chain; manufacturers also used inventory to 'drag out the game' to shift costs.
In the first quarter, 80% of the 'import rush' was concentrated in 7 categories of goods, with a weak structure, and inflation pressure has not dissipated, so it will eventually explode. The Federal Reserve's September meeting is digging its own grave. The job market is cooling, inflation pressure is increasing, tariffs hang like the sword of Damocles, and companies dare not hire or expand; critical details of the 'trade agreement' are vague, and negotiations are at a standstill.
This week's CPI data will likely see prices rise due to tariffs. The market and the Federal Reserve must gamble on when inflation will explode. Before the September meeting, the employment report and CPI data should provide guidance, but they may be distorted by tariffs.
The Federal Reserve is teetering on a tightrope, with the uncertainty of tariffs like a wicked wind; once the axe strikes true, who can guarantee that the U.S. economy won't fall into the abyss?
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