The Federal Reserve may lower interest rates in September due to consumer inflation aligning with forecasts.

The latest inflation data has caused government bond prices to rise and the USD exchange rate to fall against other currencies, while also raising market expectations for a rate cut at the Fed's September meeting.

MAIN CONTENT

  • US consumer inflation matches forecasts, creating conditions for lower interest rates.

  • Treasury bond prices rise, and bond yields fall sharply.

  • The market bets over 80% on the likelihood of the Fed cutting 0.25 percentage points in September.

Does the Federal Reserve plan to reduce interest rates in September?

The recently published CPI data shows that consumer inflation aligns with forecasts, increasing expectations of a Fed rate cut at the meeting on September 17.

This alignment boosts market confidence that inflationary pressures are being controlled, giving the Fed a basis to adjust monetary policy to support economic growth.

This expectation is based on investor analysis as the value of the USD declines and Treasury yields drop sharply immediately after inflation data is published.

How does CPI data impact the bond market and the USD exchange rate?

Immediately after the CPI was announced, US Treasury bond prices surged, causing bond yields to drop, especially the 2-year bond yield fell by 6 basis points to 3.71%.

Rising prices indicate that investors are seeking safe assets as expectations grow that the Fed will soon cut interest rates, while the USD depreciates against a basket of currencies, reflecting a more positive market risk sentiment.

This shows the sensitivity of the financial market as economic indicators directly affect investment decisions and monetary policy of policymakers.

Lowering interest rates is an appropriate action to support economic growth when inflationary pressures are effectively controlled.

Expert opinion, August 2023

How does the market assess the likelihood of an interest rate cut in September?

Investors are increasing bets with over 80% probability that the Fed will reduce interest rates by 0.25 percentage points at the September meeting.

This expectation reflects a changing economic environment, in which stable economic and inflation data create favorable conditions for monetary easing.

This outcome also highlights the quick and accurate response of the financial market to regulatory signals from the Fed.

Frequently Asked Questions

1. What is CPI and why is it important for interest rates?

CPI (Consumer Price Index) measures inflation of goods and services, helping the Fed assess price pressure to decide on interest rate policy to stabilize the economy.

2. What does a decrease in bond yields reflect about the market?

A decrease in bond yields indicates an increase in bond prices, reflecting expectations of monetary easing or heightened economic risks.

3. How does a declining USD exchange rate affect the international market?

A declining USD facilitates US export goods and affects global investment flows due to fluctuations in capital costs.

4. How do investors predict Fed policy?

They rely on economic data such as CPI, labor market indicators, and signals from the Fed to assess the likelihood of interest rate adjustments.

5. What impact does a decrease in interest rates have on cryptocurrency?

Low interest rates often stimulate capital flows into risky assets, where cryptocurrency may appreciate due to increased investment demand.

Source: https://tintucbitcoin.com/fed-giam-lai-suat-25-diem-thang-9/

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