Federal Reserve Interest Rate Decision: Is a Rate Cut in September Possible?
The Federal Reserve's July decision kept the interest rate unchanged at 4.25% - 4.50%, but internal divisions have intensified. Two prominent figures have publicly stated that a rate cut is necessary, expressing concerns that the economy may weaken and that action should be taken preemptively. However, Powell indicated that it is still uncertain whether a rate cut will happen in September, as it depends on data. When the market heard this, the originally 65% probability of a rate cut dropped to 45%, and it may have to wait until November or even December this year.
Core PCE is still stuck at 2.5%, which is higher than expected, and combined with Trump's tariff policies, has pushed up the prices of goods by 30%-40%. There is a fear of inflation rebounding if rates are cut, while not cutting rates raises concerns about the economy's ability to sustain itself.
Current economic data is mixed: on one hand, GDP grew by 3% in the second quarter, and tech stocks continue to rise; on the other hand, the number of home buyers has decreased by 3.8%, and while the unemployment rate at 4.1% is not high, it may be secretly weakening.
Powell stated that the Federal Reserve's mission is to ensure full employment and stable labor markets, and it will not account for the increased costs to the government, which reduces the possibility of a rate cut in September.
Next, keep a close eye on August! If core prices fall below 2.3% and new job additions are less than 70,000, the probability of a rate cut in September could return to 70%. However, if prices are pushed up by tariffs to above 2.8% or GDP falls below 2%, there may be no rate cuts this year.
Investment advice: Avoid high-valuation tech stocks and other interest rate-sensitive assets for now, and keep some cash on hand until August data is released. If the Federal Reserve signals a preventive rate cut later, consider buying U.S. Treasuries.
In short, the Federal Reserve is currently balancing on a tightrope: on one side, Trump is urging for a rate cut, while on the other, data and tariffs are in conflict. The direction of policy will depend entirely on whether August data is favorable!
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