Is the U.S. interest rate cut cycle that has just begun about to slow down?
The Federal Reserve, slowing down the pace of rate cuts?
Just last night, the U.S. Department of Labor released the inflation data for September. The data showed that the U.S. Consumer Price Index (CPI) for September rose by 2.4% year-on-year, with an increase of 2.5% in August, significantly exceeding the market's expectation of 2.3%.
This means that the cooling of U.S. inflation has stalled, and the U.S. has not yet completely eliminated the inflation crisis. The more severe the inflation crisis, the lower the probability of the Federal Reserve cutting interest rates and the lower the intensity of the rate cuts.
The U.S. September CPI was announced, significantly exceeding market expectations.
So, how will this black swan event affect the Federal Reserve's subsequent policies, and even the U.S. and global economies? Today, let's discuss these topics. Writing is not easy, so welcome to like, share, and bookmark.
The inflation black swan has begun, and the Federal Reserve is in a headache again?
This black swan event of inflation data was unexpected for many people. It's not just that the overall CPI exceeded market expectations, but the core CPI data, which the Federal Reserve values the most, rose by 3.3% year-on-year and 0.3% month-on-month, higher than market expectations.
This means that not only has U.S. inflation not fallen, but it is also increasing month-on-month. The U.S. inflation defense war has not only failed to win but has even begun to be completely defeated, which is what the Federal Reserve and the market did not anticipate.
So, what about the Federal Reserve's attitude? Many Federal Reserve officials said they were not worried after seeing the data. For example, New York Fed Chairman Williams stated that the downward trend of U.S. inflation is solid, and many officials also expressed their confidence.Federal Reserve officials express confidence in interest rate cuts.
Data does not lie, and indeed, the United States has experienced a black swan event in terms of inflation. However, whether the Federal Reserve will lower or raise interest rates, and the extent of the rate cut, ultimately depends on what these Federal Reserve chairs have to say.
So, despite the significant risk of inflation making a comeback, the market seems to believe that the Federal Reserve will still cut interest rates next month. Of course, it won't be by 50 basis points, but by 25 basis points, which is equivalent to a reduced intensity of the rate cut.
Of course, the Federal Reserve is not a monolithic entity. For instance, the president of the Atlanta Federal Reserve has expressed an open attitude towards not cutting rates in November. He believes that if the data is "appropriate," he would support skipping a rate cut.
Now, the inflation data for September, especially the core CPI data, has far exceeded the Federal Reserve's 2% target. Therefore, without other political and human manipulations, it is possible to slow down the rate cuts.
The higher inflation data has led to widespread complaints among Americans.
For example, the chief economist of Wolfe Research has stated that if future data shows that inflation remains stubborn, Federal Reserve officials may consider pausing the rate cuts.
In fact, this black swan event has completely disrupted the economic plans of the Federal Reserve and the United States. On September 18th, the Federal Reserve announced a rate cut to begin addressing the thorny issue of economic recession.
Then, a non-farm data dispelled the expectation of a U.S. recession, and an inflation data made the Federal Reserve start worrying about inflation again. What to do next? The black swan data has made the Federal Reserve hesitate once more.
The U.S. economy is back at a crossroads.The significant interest rate cut in September caught the global market off guard, and now various economic indicators suggest that the Federal Reserve's pace of rate cuts was too aggressive at the time. As a result, the market has widely reduced expectations for future rate cuts.
This implies that the US economy has once again reached a critical crossroads. It is challenging to resolve inflation issues in a short period, and the non-farm data from September could be the result of political manipulation or genuine data; no one truly knows.
Rumors among the public suggest that the Federal Reserve manipulated the non-farm data for Harris's votes.
According to the International Monetary Fund (IMF), the global economic growth rate this year is expected to be slightly lower than last year, with developed economies growing at 1.7% and emerging developing economies at 4.3%. China is on track to achieve its target economic growth rate of 5%.
However, judging solely by the magnitude and speed of interest rate cuts, the initially anticipated rapid rate cuts and the United States' swift monetary expansion are no longer possible. This means that the total amount of funds available to countries worldwide is not as much as we imagined, and the global economic recovery will be slowed down as a result. We still need to endure the agony of high global interest rates.
In fact, for the United States, they also want to expand the money supply and lower interest rates, as rate cuts are beneficial to the US capital market and the US economy. Neither the Federal Reserve nor the US government would have any reason to reject rate cuts.
However, due to the historical experience of "stagflation" in the United States, which is a combination of economic recession and inflation, this phenomenon, considered an economic cancer, has significantly weakened the US national power. It was only through the courage of Federal Reserve Chairman Volcker that it was ultimately resolved.
What the United States fears the most is the risk of stagflation.
The current Federal Reserve would certainly not dare to attempt to enter a "stagflation" cycle again, so Powell has no choice but to consider slowing down the magnitude and speed of rate cuts.
Therefore, for the United States, as long as inflation does not completely disappear, the Federal Reserve's monetary policy and the magnitude of rate cuts will be constrained by inflation data.