Recently, several officials from the Federal Reserve's monetary policy committee have spoken about the outlook for inflation and interest rate changes, which has stirred quite a reaction in the financial circles. Current data shows that the probability of a 25 basis point rate cut by the Federal Reserve in September has reached 89.6%, indicating that the possibility of a rate cut is quite significant.
Alberto Musalem, the president of the St. Louis Federal Reserve Bank and a voting member of the Federal Open Market Committee of the Federal Reserve, said that the U.S. labor market faces increasing downside risks, and the weak real estate market is also dragging down the economy. He also feels that the current policy interest rate is moderately restrictive, and that the current fully employed labor market and core inflation rate are aligned, although the core inflation rate is still nearly one percentage point above the Federal Reserve's target of 2%. He predicts that the labor market will gradually cool down, and the inflation rate will converge towards 2% by the second half of 2026, but he also emphasized that there is considerable uncertainty about this trend, and that inflation above the target may be more persistent.
On the same day, Federal Reserve Governor Christopher Waller directly stated that interest rates should be lowered in September, and there may be multiple rate cuts; whether actions are taken at each meeting or spaced out depends on data performance. In any case, the Federal Reserve does not have to follow a fixed schedule for rate cuts. Regarding the inflation outlook, he believes there may be some minor fluctuations in the future, but they will not be persistent, and he expects that in six months the inflation rate will be closer to the long-term target of 2%.
Looking at the data displayed by the CME Group's 'FedWatch' tool, the probability of the Federal Reserve keeping interest rates unchanged in September is only 10.4%, while the probability of a 25 basis point rate cut is 89.6%. By October, the probability of keeping interest rates unchanged is 4.9%, the cumulative probability of a 25 basis point rate cut is 47.3%, and the cumulative probability of a 50 basis point rate cut is 47.9%. Although institutions generally believe that the Federal Reserve will cut rates within the year, there is still disagreement on how many times it will happen.
HSBC Global Investment Research Chief Asia Economist Fang Limin believes that the Federal Reserve is highly likely to cut rates by 25 basis points in September. However, if the newly released U.S. labor market data this week is very strong, it may also delay the rate cut. He also mentioned that the current focus of market discussions is no longer whether there will be a rate cut in September, but rather how many more rate cuts there will be after September. Many believe there could be 5 to 6 rate cuts coming up, but he is more conservative, thinking that a maximum of 3 rate cuts after September would be about right. He also mentioned that in the next 12 months, the Federal Reserve may face a significant personnel adjustment, and if the newly elected members tend to favor rate cuts, there could be more rate cuts in the future.
Morgan Stanley Wealth Management Chief Economic Strategist Ellen Zentner also pointed out that the Federal Reserve has opened the door to rate cuts, and how much depends on the weakness of the labor market and rising inflation, with greater risks coming from whichever factor has more impact. The latest PCE data met expectations, so the market's focus remains on the job market; given the current situation, the possibility of a rate cut in September is greater.
Overall, the series of actions and statements from the Federal Reserve have made everyone pay extra attention to the future economic trends.$BTC #美联储降息预期
