Comrade Soros warns: The probability of inflation rebounding is high, and the Fed may be too happy too soon

The US Federal Reserve (Fed) announced a 2-notch rate cut on September 19, lowering the interest rate to 4.75% to 5%, initiating the first rate cut since 2020. It then announced another 1-notch cut in November, lowering the interest rate to 4.5% to 4.75%. Prior to the Fed's rate cuts, the US benchmark interest rate had remained at 5.25% to 5.5% for nearly a year, with the aim of bringing down the persistently high inflation rate. After prolonged efforts, the US inflation rate has indeed shown a significant decline. According to data from MacroMicro, the Fed's preferred inflation indicator, the Personal Consumption Expenditures (PCE) price index, has declined to a year-over-year increase of 2.09% in September, very close to the Fed's 2% target. Soros Ally: Inflation May Rebound Against this backdrop, according to a report by MoneyDJ, Stanley Druckenmiller, the mastermind behind the 1992 short-selling of the British pound that earned Soros Quantum Fund $1 billion, expressed concerns in an interview that inflation may rebound: "I'm a little worried that the Fed has declared victory on inflation too soon... With credit spreads tightening, gold prices hitting new highs, and the stock market soaring, coupled with no real signs of economic weakening (only a small part turning weaker), I'm concerned that inflation may resurface." Druckenmiller pointed out that inflation in the 1970s had rebounded after cooling down, and he believes the Fed has made the mistake of cutting rates when the economy is strong, relying too much on economic data: "Whenever inflation cools, the Fed cuts rates to ensure economic growth, and justifies the rate cuts based on changes in employment reports, but this is the wrong approach." Druckenmiller further stated: "The Fed's mission is to avoid a repeat of the 1970s. Tweaking policies and worrying about whether the economy will have a soft landing is not the Fed's job. I believe the Fed's responsibility is to maximize employment in the long term, not just the next 3-4 months." Over 70% Chance of Slower Rate Cuts On the other hand, due to the policies implemented by the new administration after Trump's election victory, inflation may heat up again, and the market generally expects the Fed to slow the pace of rate cuts. According to CME FedWatch data, the market expects a 64.3% chance of a 1-notch rate cut by the Fed in December, but the probability of the benchmark rate remaining above 4.25% to 4.5% in January is as high as 73.2%. In other words, there is a over 70% chance that the Fed's next two rate decisions will only involve a 1-notch cut. However, Neel Kashkari, the president of the Federal Reserve Bank of Minneapolis, stated in a recent interview with Fox News that it is too early to discuss the impact of the new government and Congress on US interest rates, and the Fed is focused on the strength of the US economic growth: "Assuming the current economic momentum continues, allowing the US economy to structurally improve productivity, the Fed may need to cut rates fewer times than expected."