Now, the entire online community is wildly spreading the idea that the Federal Reserve will definitely cut rates in September, with some even claiming the probability exceeds 90%, but 99% of people are wrong. Currently, the major Wall Street firms are quietly retreating, while only retail investors are frantically buying in. The divergence between the two sides has reached a historical extreme, and what’s even more frightening is that the latest inflation data, employment data, and tariff impacts do not support a rate cut.
On Friday, Federal Reserve Chairman Powell will speak at the global central bank annual meeting, and his true purpose may be to personally crush the market's fantasy of rate cuts. If you are still blindly following the trend, you will likely be heavily harvested by the market next. Today, I will use the hardest data to expose this rate cut scam, and after reading, you will understand why Powell might drop a hard-core bomb? Why the probability of a rate cut in September will be halved? What should ordinary people do now?
First, let’s look at the key question: why is the market so enthusiastic about interest rate cuts? According to the CME FedWatch tool, traders are betting on a 92% chance of a rate cut in September. What does this number mean? It means almost everyone believes the Federal Reserve must cut rates next month. But here’s the issue: the more the market has a consensus expectation, the more likely it is to be wrong, because the Federal Reserve never follows the market’s script. Let’s review some historical lessons. In June 2023, the market bet that the Federal Reserve would cut rates soon, and Powell directly took a hawkish stance; in January 2024, the market bet on a March cut, but the Federal Reserve held firm until June. This time, history is likely to repeat itself, as the latest economic data does not support a rate cut. Now, let’s use three strong pieces of evidence to prove that the conditions for a rate cut are simply not met.
- The first piece of evidence: core inflation has surged again, and the Federal Reserve is most afraid of super core inflation accelerating. After the July CPI data was released, many only saw the overall inflation rate at 2.7%, thinking inflation was cooling and a rate cut was secure. But the reality is that core inflation (excluding energy and food) is 3.1% year-on-year and 0.3% month-on-month, both accelerating. Even more frightening is that super core inflation (service sector inflation) skyrocketed by 0.55% month-on-month. This is the stubborn inflation that the Federal Reserve fears most because it is strongly correlated with wage growth; cutting rates would only exacerbate the situation. Powell has long stated that we will not easily cut rates until inflation returns to 2%, and now core inflation is not only not decreasing but increasing—should we surrender in September?
- The second piece of evidence: the tariff bomb has not exploded yet, and commodity prices may soar in the coming months.
The Biden administration imposed tariffs on Chinese electric vehicles, semiconductors, and steel this year, but these costs have not fully passed through to prices yet. A recent report from Pacific Investment Management Company (PIMCO) warns that the effects of tariffs have a lag, and commodity inflation may suddenly surge in the coming months. If the Federal Reserve cuts rates in September, it would coincide with a wave of tariff-induced price increases, potentially causing inflation to explode again.
- The third piece of evidence: the job market is not collapsing at all. The unemployment rate remains at a historical low, while the market is now frantically speculating about a slowdown in employment. But the truth is: the unemployment rate is still below 4%, and hourly wage growth remains as high as 4.1%.
The minutes from the Federal Reserve's July meeting show that two board members openly opposed cutting rates, believing that the job market remains strong and that a rate cut would only stimulate a rebound in inflation. In summary: inflation is not dead + employment is not collapsing + tariff bomb is waiting to explode = a rate cut in September is out of the question.
Next, we will analyze the nuclear-level signals that Powell may release tonight. Powell will speak at the global central bank annual meeting, and his core objective is very clear: to burst the market's expectations of rate cuts. An internal report from Morgan Stanley reveals that Powell will not give a green light for a rate cut, but will emphasize 'data dependence' to calm the market. What does this mean?
- First, he will say whether to cut rates in September depends on the data from August, but the August CPI and non-farm data will only be released in September, so the probability of a rate cut in September will be instantly halved.
- Second, he will suggest that inflation still poses a risk, warning the market not to be too optimistic.
- Third, he will hit back at Trump. Recently, Trump has been criticizing 'Powell for being too slow to cut rates,' and the Federal Reserve must prove it is not subject to political influence.
How will the market react? If Powell takes a hawkish stance and emphasizes inflation risks, U.S. stocks, especially real estate and tech stocks, may plummet, the dollar may surge, and gold and Bitcoin may crash in the short term, making interest rate-sensitive assets (junk bonds, REITs) dangerous. The market has already split into two major camps: retail investors are frantically betting on a rate cut (Bank of America data shows that $21 billion flowed into U.S. stock funds in a single week, with retail investors desperately buying real estate stocks and cryptocurrencies, betting on the Federal Reserve easing); major Wall Street firms are quietly retreating (Barclays, Bank of America, and Morgan Stanley are all warning that 'the probability of a rate cut is overestimated,' and Goldman Sachs even advises clients to hedge against 'the risk of no rate cut in September').
Historical experience tells us: when retail investors bet against Wall Street, the institutions always win in the end. So what should ordinary people pay attention to now? First, be wary of the volatility risk of interest rate-sensitive assets; second, pay attention to subsequent changes in macroeconomic data; and most importantly, remain rational—if you don't want to be swept up by market emotions, stay alert now.