Is the Fed's rate cut in September in jeopardy? Internal factions are in a heated conflict!
From the current macroeconomic situation, market expectations for a Fed rate cut in September have clearly cooled, and the internal divisions regarding policy direction are more severe than imagined. Conservative officials like Harker and Schmidt are directly opposing the idea, arguing that the current interest rate level is sufficient, and that the inflation risk far outweighs the employment risk, clearly opposing a rate cut this month; while moderate officials like Bostic and Collins still believe a rate cut should occur once this year, their attitude has also become cautious, emphasizing the need to assess whether employment data worsens further.
Currently, the economic data itself is full of contradictions, with the manufacturing PMI index soaring to an 8-month high of 55.4, indicating short-term economic resilience; however, the number of initial jobless claims suddenly surged to 235,000, signaling obvious weakness in the job market. This conflicting data has directly led to market bets cooling, with the probability of a rate cut in September plummeting from previously 91% to 75%, of which the probability of a 25 basis point cut is only 61% now.
The internal division within the Fed is unlikely to be reconciled in the short term. Tonight, Powell's speech will likely follow a 'hawkish-dove' strategy: on the surface, he will emphasize vigilance against recurring inflation and adopt a hawkish stance; but in reality, he is paving the way for a rate cut. There is a 60% chance that he will release hawkish signals during his speech, but ultimately, in September, he will still yield to pressure and cut rates by 25 basis points, as the deterioration in employment data is already on the table, and stubbornly resisting inflation risk will only lead to greater issues.
