Breaking news! The Federal Reserve minutes cause turbulence, Powell faces a 'choose one' dilemma.
On August 21, the minutes of the Federal Reserve's July meeting were released: interest rates were kept unchanged in the range of 4.25%-4.5% for five consecutive times, and for the first time since 1993, two board members (Bowman and Waller) voted against, with their opposition directly pointing to the need to 'guard against the risks of a weak labor market'.
However, within less than 48 hours, the U.S. Department of Labor suddenly revised down the non-farm payrolls for May to July by a total of 250,000, and the unemployment rate climbed to 4.2% (the highest since the end of 2022); on the other hand, both the core CPI and PPI for July exceeded expectations, creating a 'dual mandate' conflict between inflation pressures and weak employment, suddenly tipping the scales of Federal Reserve policy.
Market reactions were immediate: the probability of a 25 basis point rate cut in September plummeted from 85% to 72%, the Nasdaq fell by 1.1%, and the 10-year U.S. Treasury yield jumped to 3.87%.
At the upcoming Jackson Hole annual meeting on August 23, Powell will face a dilemma: if he insists on 'prioritizing inflation', it may contradict the principle of 'data dependence'; if he eases his stance on employment, he fears inflation expectations may spiral out of control again.
In the next two weeks, key data such as non-farm payrolls and PCE will be released one after another. Will this Federal Reserve chairman prioritize protecting employment and 'stabilizing the foundation', or will he suppress inflation to 'prevent a rebound'? The answer may reshape market direction.
