Breaking News! Fed Minutes Cause Turmoil, Powell Faces a Choice
On August 21, the Federal Reserve released the minutes from July: maintaining the interest rate at 4.25%-4.5% for the fifth consecutive time, with two board members (Bowman, Waller) opposing for the first time since 1993, citing concerns over weak employment.
In less than 48 hours, the U.S. Department of Labor revised non-farm payrolls for May and July down by 250,000; the unemployment rate rose to 4.2% (a new high since the end of 2022); July's core CPI and PPI both exceeded expectations, creating a rare conflict between inflation and employment pressures.
The market reacted quickly: the probability of a 25 basis point rate cut in September dropped sharply from 85% to 72%, the Nasdaq Composite fell 1.1%, and the 10-year U.S. Treasury yield rose to 3.87%. At the Jackson Hole annual meeting on August 23, if Powell insists on "inflation first," he risks violating "data dependence," but if he eases up, he fears inflation expectations could spiral out of control.
In the next two weeks, with non-farm and PCE data on the horizon, will he prioritize employment or curb inflation?
