I am Caiyue, let's get straight to the point: 99% of people might be wrong about the Federal Reserve cutting interest rates in September! Right now, market sentiment is polarized, while retail investors are still betting wildly on rate cuts, major institutions on Wall Street have quietly retreated. Don't be fooled by superficial probabilities; three core logic points directly undermine the rate cut expectations:
First, inflation is still rising
July's core inflation was 3.1% year-on-year and 0.3% month-on-month, and what's worse is the "super core inflation" (service inflation excluding housing) surged by 0.55% month-on-month. This is directly linked to wage growth and is the most stubborn inflation that the Federal Reserve is worried about. Cutting rates now? That would be pouring gasoline on inflation, which will only drive prices crazier!
Second, tariff impacts haven't arrived yet
Biden's tariffs on China have not yet fully transmitted to end prices. If goods prices suddenly soar in the coming months, will the Federal Reserve cut rates then? That would be a slap in the face, and inflation would spiral out of control.
Third, the job market is stable
The unemployment rate is below 4%, and hourly wage growth is at 4.1%. What kind of "economic recession" is this? Even within the Federal Reserve, there are members opposing rate cuts, believing the job market hasn't collapsed at all. Cutting rates now? It would actively stimulate a rebound in inflation.
Powell's speech on Friday is meant to burst the rate cut expectations
He will directly throw out the data: the key data for August will be released in September, and there is currently no basis for cutting rates. At the same time, he warns of inflation risks, not to be too optimistic, and counters Trump (proving that the Federal Reserve is not politically bound). By then, the probability of a rate cut in September could be cut in half or more.
What’s the market situation now?
Retail investors are still all-in on rate cuts, while institutions have long since hedged and fled. Goldman Sachs is advising clients to prepare for "no rate cut in September." Historically, when retail investors and institutions gamble, the ones crying in the end are definitely the retail investors.
What should ordinary people do?
Be wary of the volatility risks of interest rate-sensitive assets, don’t be stubborn and catch falling knives; closely monitor the August inflation and employment data, as they are the decisive factors; stay rational, don’t get swept away by market sentiment, and stay clear-headed now— the bigger the hype around rate cut expectations, the harder the fall will be.
The Federal Reserve currently has no reason to cut rates unless they want to ignite the next round of inflation. Retail investors, be more mindful!
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