To make the interpretation of the Federal Reserve's rate cut expectations more accessible, while reinforcing the 'avoid pitfalls' direction, I will use expressions closer to ordinary people's understanding to break down the data, highlighting 'lessons that retail investors can learn' in conjunction with historical cases, and transform complex logic into a clear chain of 'market signals - real situations - response actions':
Federal Reserve rate cut in September? Don't be misled by the market! Three sets of data expose the illusion, avoiding the pitfalls retail investors are likely to fall into.
Now the entire internet is shouting 'the Federal Reserve will definitely cut rates in September', even inflating the probability to over 90%, but the more people believe it, the more cautious one should be — after all, in June 2023 and January 2024, the market bet on rate cuts only to be harshly 'slapped in the face' by Powell; this time could very well be another 'collective misjudgment'.
First, let's look at a painful comparison: Wall Street has quietly retreated; Barclays and Goldman Sachs have recently warned that 'the probability of a rate cut is overestimated'; yet retail investors are still rushing in, pouring $21 billion into U.S. stocks and cryptocurrencies in just one week. This kind of 'institutional calmness versus retail frenzy' disparity has historically led to losses for ordinary people who follow the trend.
1. Three sets of key data: why is there 'no chance' of a rate cut in September?
Don't just listen to the market cheering; data does not lie. These three signals have already made 'no rate cut' very clear:
1. Inflation is not 'honest'; on the contrary, it hides 'hidden dangers'.
On the surface, July's inflation is at 2.7%, which seems close to the Federal Reserve's 2% target, right? But if we exclude the volatile energy and food prices, the core inflation is still as high as 3.1% — this is the 'tough nut' the Federal Reserve is really focused on. What's even more troubling are the prices in the service sector, such as rent and medical expenses, which are closely related to daily life; in July, they rose by 0.55% month-on-month, which means prices are quietly increasing every month.
Powell has already stated: 'We will not easily cut rates unless inflation returns to 2%.' Now that core inflation has not decreased but has risen, do you think he will 'surrender' in September?
2. The tariffs imposed by Trump haven't started 'causing trouble' yet.
The tariffs previously imposed on Chinese electric vehicles and semiconductors have not yet fully passed on costs to the products we buy. Pacific Investment Company recently warned: in the coming months, commodity prices may suddenly spike — for example, Nike has already announced a price increase of $5-10.
If interest rates really drop in September, it's equivalent to 'injecting liquidity' into the market, and combined with price increases caused by tariffs, isn't that just adding fuel to inflation? The Federal Reserve wouldn't be so foolish as to do this.
3. The employment market is stable; it has not reached a 'rescue' level.
Currently, the unemployment rate is still at a low of 4.1%, and wage growth is also at 4.1%, with no large-scale unemployment or income decline. During the Federal Reserve's meeting in July, two board members even directly opposed a rate cut, arguing that 'employment is too strong, and a rate cut would cause inflation to rebound.'
It's important to know that the Federal Reserve usually lowers interest rates only when the economy is struggling. Since employment is stable and inflation is not under control, what reason is there for a rate cut?
Two, is Powell going to 'pull a big move' tonight? The probability is high that it will be 'pouring cold water'.
On Friday (22:00 Beijing time), the global central bank annual meeting will take place, and Powell's speech will be the market's 'watershed'; he will likely do three things to directly cool the expectations of a rate cut:
Shifting the blame to 'data': they will certainly say 'whether to cut rates in September depends on August data' — but the CPI (price index) and non-farm (employment) data for August will only be released in September, which is equivalent to saying 'don't think about September for now';
Warning about inflation risks: they will emphasize that 'service sector prices are still rising', reminding the market not to be overly optimistic and not to treat rate cuts as a 'done deal';
Confronting Trump: Recently, Trump has been criticizing 'Powell for cutting rates too slowly', even threatening to replace the Federal Reserve Chair. Powell must state that 'the Federal Reserve is not subject to political manipulation', otherwise the central bank's credibility will collapse — during this time, he will only become more 'hawkish' and will not follow Trump's wishes.
I dare to predict: once he makes this statement, the market's fantasies of a '90% probability of rate cuts' will likely shatter.
Three, what should ordinary people do now? Don't be a 'greater fool'; focus on three key time points.
Now, what you should do is not to follow the trend in buying stocks or cryptocurrencies, but to 'avoid pitfalls'. Remember these points:
Stay away from high-risk assets: Real estate stocks, junk bonds, and Bitcoin are all 'living off low interest rates'; once rate cut expectations fall through, they are likely to crash. In contrast, the U.S. dollar and short-term Treasury bonds will be safer.
Keep an eye on three key dates: these three data points are the real 'wind indicators', much more reliable than the market's wild guesses:
August 29: Watch the inflation indicator that the Federal Reserve values most, PCE. If it is still rising, a rate cut is even less likely.
September 6: August non-farm employment data. If employment remains stable, the reasons for a rate cut become even less.
September 12: August CPI. Observe whether tariffs have caused prices to surge, which will directly influence the Federal Reserve's decision-making.
Don't believe the nonsense that 'data dependence = must cut rates': Powell said 'we look at the data', but what he actually means is 'if the data is bad, a cut may happen; if the data is good, there won't be a cut' — currently, the market interpreting 'data dependence' as a 'sure cut' is pure self-deception.
Four, let me say something straightforward.
The probability of a rate cut in September has now been inflated to 90%, which is simply not realistic; it wouldn't be surprising if it were halved to below 40%. If Powell speaks hawkishly tonight, U.S. stocks, gold, and cryptocurrencies are likely to experience a short-term crash.
Remember the lessons of 2022: during the Jackson Hole annual meeting that year, Powell delivered a hawkish speech for 10 minutes, and U.S. stocks dropped 4% in a week. Retail investors should not gamble against Wall Street; it's most prudent to hold some cash and buy short-term bonds. When the market calms down, opportunities will abound — don't rush in now and become 'cannon fodder'.
