The Federal Reserve Signals Cooling of Market Rate Cut Expectations

As the market celebrates Powell's hints at a rate cut, Nick Timiraos from the 'New Federal Reserve News Agency' published an article that doused cold water on the fervent rate cut expectations.

The article was released the day after Powell's remarks and contains both the Federal Reserve's internal intentions and the author's analysis.

The article points out that while Powell hinted at a possible rate cut next month, he also cautioned the public not to expect interest rates to decline steadily, indicating that a rate cut in September may not mark the beginning of a rate cut cycle.

Comparing Powell's hints at rate cuts during Jackson Hole last year and this year, last year's direction was clear while this year's is vague and tentative, reflecting the uncertainty and flexibility of the Federal Reserve's decision-making.

Moreover, there is no consensus within the Federal Reserve regarding a rate cut in September. The article cites the views of three individuals opposed to a rate cut, among them Cleveland Fed President Harker and St. Louis Fed President Bullard, who are from within the Federal Reserve. Their subsequent statements will be worth watching. If their stance remains unchanged, even if a cut occurs in September, it may only be a one-time 'insurance rate cut.'

Next Friday, the Federal Reserve will face a key challenge — the release of its favored inflation data. The core PCE price index for the U.S. in July is expected to grow by 2.9% year-on-year, the highest since February. If economic activity rebounds, businesses may pass more tariff costs onto consumers, increasing the risk that 'August CPI and non-farm data' will not support a rate cut in September.

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