The U.S. Federal Reserve will announce its interest rate decision at 2 a.m. Taiwan time on Thursday, and is expected to keep interest rates unchanged at 5.25% to 5.5%. The market is paying attention to whether it may release a signal to cut interest rates in September, which is known as the "Federal Reserve's megaphone." "Wall Street Journal" reporter Nick Timiraos wrote an analysis that officials will predict that an interest rate cut in September is very likely this time.
The report pointed out that although the reasons for cutting interest rates are growing, the Fed is unlikely to cut interest rates this week because inflation data has continued to surprise in the past, and Fed officials will hope to have more evidence of inflation before cutting interest rates for the first time. It's definitely cooling down.
However, Fed officials are also worried about cutting interest rates too slowly and missing the opportunity for a soft landing for the economy. Fed Powell told Congress this month that inflation will be reduced to the Fed's 2% target while maintaining a healthy labor force. The market "is the number one thing that keeps me awake at night."
New York Fed President John Williams said earlier this month that there was no legitimate reason to cut interest rates in July and that officials would "know a lot" between July and September. He pointed to recent solid economic activity, but how to make policies less restrictive. How to lower interest rates is a decision that should be made at some point in the future.
Nick Timiraos believes that the Fed's readiness to cut interest rates reflects three factors, namely good news about inflation, signs that the labor market is cooling, and the assessment that inflation continues to remain at too high a level and may lead to unnecessary economic weakness. Changes occur between risks.
Possible rate cut by 2% in September?
It is worth noting that Bloomberg reported that as U.S. Treasury bonds rose for the third consecutive month, investors have fully digested expectations of at least two 1-cent interest rate cuts this year. However, in the derivatives market, some traders made bold bets that the United States The Fed will cut interest rates by 2 percentage points at a time in September, or even start cutting interest rates earlier.
While this is still not the scenario expected by the mainstream, market speculation on whether the Fed will need to take aggressive action has gradually increased due to evidence that businesses and consumers are feeling the pressure of the highest interest rates in 20 years. Brandywine Global Investment Management Portfolio manager Jack McIntyre said:
If the labor market shows more signs of weakness, the economy will be in worse shape, prompting the Fed to deepen its rate cuts. We don't know what kind of rate-cutting cycle this will be.
Data in the coming months will be critical, including the upcoming employment report. George Catrambone, head of fixed income at DWS Americas, pointed out that if there is evidence of substantial economic weakness, it may bring new doubts about the ability of a soft landing, or it may Let the Fed lag behind the situation and miss the opportunity to cut interest rates in July.
According to CME Group Fedwatch data , the chance of maintaining interest rates at 5.25% to 5.5% in July is as high as 95.9%, and the chance of cutting interest rates by 1% to 5% to 5.25% is only 4.1%. In September, the chance of cutting interest rates by 1% to 5% to 5.25% is as high as 95.9%. % probability is 85.8%, and the probability of cutting interest rates by 2 yards to 4.5% to 4.75% is 13.8%.
