The significant downward revision of early employment positions for August and last week's PPI have begun to ferment in the US stock market. I have mentioned before that such a large-scale tariff cannot fail to be reflected in economic data. Regardless of the reasons that led to the Labor Department's overestimated data in the previous two months, the unrealistic data certainly fueled the surge of the Nasdaq.

Many people are saying that the Federal Reserve will not cut interest rates in September. Here are my thoughts.

In the past, if you said that the Federal Reserve cut interest rates under Trump's pressure, it would certainly not have been agreed upon. Although the Federal Reserve is not fully independent, it at least has to be responsible for the U.S. dollar, which is its liability. The most important premise for the existence of a central bank is to maintain currency stability. Other major currencies are lowering interest rates (except Japan), and the eurozone has already cut rates by several hundred basis points, creating a 200 basis point interest rate difference with the U.S. dollar.

From the market perspective, as long as the CPI does not continue to rise above 3%, the real interest rate is approximately 1-2%, and it has been sustained for a long time. If we only look at market behavior, perhaps the Federal Reserve could indeed cut rates early like the eurozone, but we cannot ignore Trump's tariff policy and a series of stimulus policies, such as significantly increasing the fiscal deficit. Relying on those tariffs is far from comparable to the interest costs, which account for about 20% of fiscal expenditure. We are facing the problem of increased tariffs, but debt accumulation has not slowed down, so the market's enthusiasm will naturally not shrink just because real interest rates are positive; instead, it will heat up again under stimulus policies.

Now the market is basically clear. The U.S. has reached framework agreements with several major economies in the short term, which at least allows tariffs to be reduced temporarily, relieving supply shocks. The temporary tariff agreement with our country has also been extended. Therefore, unless Trump stirs up some major trouble before September, otherwise, when CPI in July and August remains relatively stable and aligns with or falls below market expectations, it will create political space for interest rate cuts.

The market side has already supported interest rate cuts, and the policy side has also created space for rate cuts. This is the previous conclusion. If Trump is not foolish and wants to quickly push the Federal Reserve to cut rates, the choice is actually in his hands; he just needs to quickly finalize agreements with major economies to reduce policy uncertainty. The Federal Reserve does not mind cutting rates and may even exceed expectations.

In fact, after the July CPI was released, a 25 basis point cut in September was basically locked in. Now that the September PPI has come out, it can be called a significant surprise, making a 25 basis point cut in September even more certain.