Is the 3.2% CPI level in the United States a sign that the inflation crisis in the U.S. has not yet ended? After the U.S. stock market first rose and then fell, does it mean that the Federal Reserve's warning has taken effect? Will the U.S. continue to raise interest rates?
Will the Federal Reserve continue to raise interest rates?
On the evening of August 10th, the United States finally released a significant piece of data: a 3.2% CPI growth rate in July. This indicates that after 12 consecutive months of declining inflation data, the U.S. inflation has experienced a "rebound." After all, compared to the 3% data in June, this time's 3.2% is an increase.
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We know that the rebound of U.S. inflation means that the gap from the Federal Reserve's 2% inflation target is getting further away. Will the Federal Reserve change its previous signal and continue to raise interest rates? Today, let's discuss the U.S. inflation data and the Federal Reserve's interest rate hike expectations.
U.S. inflation data released? Will the U.S. continue to raise interest rates?
According to data from the U.S. Department of Labor, the U.S. CPI data for July is 3.2%. Although this data is higher than the previous value of 3%, it is slightly lower than the expected 3.3%. Therefore, after the data was released, the U.S. stock market rose.
The July CPI data was announced, and inflation rebounded by 0.2%
Because the data was better than market expectations, this means that the probability of the Federal Reserve continuing to raise interest rates is reduced, leading to a decline in U.S. Treasury yields. The inversion between the 2-year and 10-year Treasury rates narrowed, and the U.S. stock market also rose by 1%.
Even U.S. professionals who are close to the Federal Reserve and well-informed have indicated that the U.S. CPI data is considered moderate. The Federal Reserve will reduce the probability of raising interest rates in September after seeing this data.
In addition, the core CPI, which is closer to residents' lives, also showed an unexpected decline. Therefore, the current market expects the probability of the U.S. raising interest rates in September to drop from the previous 13% to 9%. This basically maintains my previous judgment on the Federal Reserve's "last interest rate hike."So, purely from the perspective of data and probability, the Federal Reserve is unlikely to raise interest rates in September, which is good news for the global economy and financial markets.
However, things are never that simple, and the Federal Reserve has its own thoughts on the matter.
For instance, Federal Reserve officials believe that the inflation data for July does not mean that the Federal Reserve will end interest rate hikes. The San Francisco Fed Chairman, who has voting rights, also stated that the Federal Reserve has more work to do to achieve the 2% inflation target.
San Francisco Fed Chairman Daly: To achieve the 2% inflation target, the Federal Reserve has more work to do.
Of course, it is unclear whether this statement is an attempt by Federal Reserve officials to assert their presence. In any case, the Federal Reserve remains indecisive about its subsequent interest rate path. And when it will cut interest rates, we still do not know.
Federal Reserve Chairman Powell has also said that whether the United States will raise interest rates in September depends on the latest data. Although the July CPI data is a significant figure, there are still August CPI data and non-farm data to be released.
In terms of timeliness, those two sets of data are the latest basis for determining whether the Federal Reserve will raise interest rates in September. Compared to them, the July CPI data seem to be of little importance.
With falling rents, negative wage growth, and consecutive financial explosions, the Federal Reserve faces great pressure to cut interest rates.
Now that the probability of the Federal Reserve raising interest rates is continuously decreasing, even less than 10%, what is the probability of interest rate cuts? This still depends on the current crisis in the United States.
In recent times, a series of hidden dangers have emerged in the domestic economy of the United States, which could force the country to adopt interest rate cuts to stimulate and restore the economy.For instance, one of the three major rating agencies, Moody's, recently issued a warning, downgrading the credit ratings of 10 small and medium-sized banks in the United States, as well as the credit ratings of six large banks. From the banking crisis in the United States in March, we know that the high interest rates caused by the continuous rate hikes by the Federal Reserve were the key factors triggering widespread bankruptcies and crises in the U.S. banking industry.
Moody's downgraded the credit ratings of 16 U.S. banks.
This move by Moody's is also an implicit suggestion to the Federal Reserve that if it continues to raise interest rates or maintains such high U.S. dollar interest rates, coupled with the potential for economic recession and the risks of commercial loans, then the U.S. banking industry may not be able to withstand the pressure.
The U.S. debt ceiling crisis is also ongoing. Previously, Fitch downgraded the United States' credit rating from the highest AAA to AA+, which actually caused great dissatisfaction among the U.S. government. Of course, Fitch was also quite firm, believing that the United States has several times played games with global investors due to debt issues and triggered financial turmoil.
In addition, Fitch judged that the U.S. debt issue is very difficult to resolve completely, and the probability of deterioration has greatly increased. The debt burden will continue to intensify, so this credit rating was given.
One way to solve the above two major issues is for the Federal Reserve to release the previously withdrawn U.S. dollars through interest rate cuts, and then use these dollars to repay debts, reduce burdens, activate the economy, and address fiscal challenges, which is a better choice.
Therefore, the pressure on the Federal Reserve to cut interest rates is actually very high.
For the American people, raising interest rates has actually reduced the purchasing power level of American residents. Americans' income has decreased, and the credit card delinquency rate is continuously rising, which has also made American residents feel the pressure.
The rise in U.S. credit card delinquency rates.
These pressures will eventually be summarized and become the pressure for the Federal Reserve to cut interest rates, thereby prompting the Federal Reserve to raise interest rates, despite returning to a loose cycle.The Federal Reserve warns against excessive optimism
In the face of a series of complex economic changes, Federal Reserve Chairman Powell also issued his own warning.
Firstly, he believes that the market is too optimistic about the Federal Reserve's interest rate cuts. Essentially, there will be no rate cuts in 2023 because the Federal Reserve's goal has always been the already announced 2% inflation rate. We are still far from the target, and even if there are no further interest rate hikes, it is impossible to cut rates too early.
In addition, the minutes of the U.S. Federal Reserve's meetings indicate that controlling the inflation target will take precedence over all other goals. Regardless of economic growth, hard or soft landings, monetary policy, and lags, etc., the Federal Reserve will not care. Their goal is to firmly control inflation first.
Powell strictly adheres to the 2% inflation target.
Powell has also repeatedly stated that although inflation control is going well, the current inflation problem in the United States is still "deep-rooted." Therefore, there will be no rate cuts this year, and the Federal Reserve's balance sheet reduction will continue independently.
Summary
Overall, the U.S. CPI data for July has not yet reached the Federal Reserve's 2% target, which means that the Federal Reserve will not easily end interest rate hikes.
In addition, there are many hidden dangers in the U.S. economy, such as increased risks in the banking industry and debt, which will put some pressure on the Federal Reserve to cut rates.
U.S. easing can help China's economy recover, but we may not be able to wait.So, for China, the timing of the Federal Reserve's policy shift remains uncertain. While it would be ideal for China's economic recovery to coincide with the easing of U.S. interest rates for the best effect, if the Federal Reserve chooses not to lower interest rates, we must continue to stimulate the Chinese economy through supportive policies and favorable measures to ensure its recovery!