Federal Reserve Chairman Powell's recent public statements have released a clear signal of policy shift. At the August Jackson Hole annual meeting, he explicitly stated, 'The time for policy adjustment has come,' pointing out that the current interest rate level of 5.25%-5.50% has ample room for cuts. This statement not only confirms the market's strong expectations for a rate cut in September (with the current CME futures implied probability reaching 89%), but also reveals a subtle shift in the Fed's policy focus—from aggressively raising rates to combat inflation in 2022, to prioritizing stability in the job market today.
The dual support of economic data and policy logic: The market's strong confidence in a rate cut in September stems from multiple resonating factors.
Certainty of inflation decline: Powell emphasized that core inflation has steadily fallen from a high of 7% during the pandemic to 4.3%, and is expected to reach the 2% target by the end of the year. The latest revised data from the Labor Department indicates that the non-farm employment figure over the past 12 months has been revised down by 818,000, confirming the trend of cooling in the job market.
Lagging effects of tariff policies: The December Beige Book shows that although current inflation pressures are mild, companies generally warn that the tariff policies proposed by the Trump administration may raise future cost pressures. This policy uncertainty is translating into an urgent market demand for preemptive rate cuts.
Technical adjustment window: From the federal funds model perspective, the current optimal interest rate has fallen to 4.75%, suggesting a rate cut space of 75 basis points. The market's technical pattern shows a 'descending wedge' formation, and a breakthrough of the key resistance level at 118600 will release a trend reversal signal.
Policy divergence and market game
It is worth noting that there are significant divergences within the Federal Reserve regarding the pace of rate cuts. Hawkish representatives like Musalem emphasize the risk of sticky inflation, while doves like Williams argue that 'monetary policy is still in a tightening state.' This divergence further intensified during the December meeting, with CPI and non-farm data becoming key variables for the final decision. As analysts point out, Powell's 'cautious' stance is primarily to balance multiple pressures: avoiding a rapid rate cut that could trigger an inflation rebound while preventing the economy from falling into recession due to credit tightening.
Operational advice and risk warning:
For investors, the current market has priced in rate cut expectations; the real opportunity lies in the verification phase after the policy is implemented.
Short-term strategy: Closely monitor the non-farm data and CPI trends on September 6. If the increase in employment numbers falls below 100,000 and year-on-year inflation is below 4.5%, it will trigger confirmation of a rate cut scenario.
Medium to long-term perspective: We must be wary of the potential disruptions to the supply chain caused by tariff policies that may form a 'wage-inflation' spiral. As Lu Yao previously warned, market fluctuations in May and June reflect more of a policy expectation game, while substantial changes in the economic fundamentals will dominate market direction after the tariff effects become evident in September and October.
Technical focus: If the S&P 500 index can effectively break through the key resistance level of 118600 (corresponding to the 200-day moving average), it will confirm the bottoming rebound trend, at which point the risk-reward ratio will be significantly optimized.