Some people say that this September, the Fed is facing the most difficult decision in history, is it so difficult for the dollar to cut interest rates? What's so hard?
The dollar interest rate meeting has begun, and Powell has been sticking to the hawkish position for more than two years. JPMorgan Chase very unceremoniously revealed the truth, slapping Powell and the Fed top brass in the face.
Today, the September dollar interest rate meeting began, and the world is looking forward to it, and Wall Street is eagerly awaiting.
Why is the Fed facing the toughest decision in its history?
This is not only that they have no decision at all, but more importantly, facing a divided United States, coupled with the political tearing in an election year, the decision to cut interest rates in the dollar is inevitably drawn into the vortex of political struggle.
In addition, the huge difficulties faced by the Fed, as well as the true and false economic data of the United States, are very entangled and even fight with each other, some data show that interest rates must be cut immediately, and some data show that interest rates are not needed.
At this time, Powell, who often talks about data such as CPI and unemployment rate, used to be able to use data to support it, but now the data is difficult to justify, so only a hard mouth remains.
In the face of such a complex situation, should interest rates be cut or not? If interest rates are cut, 25 basis points, or 50 basis points? The Fed is running out of options, and time is running out.
In fact, as far as the Fed itself is concerned, the decision to cut interest rates is not so difficult, but the difficulty is whether to cut interest rates or not, how to face all forces, and how to make a story in front of the United States people, this challenge is becoming more and more difficult.
The mystery of this lies in the fact that the bigwigs behind it are responsible for decision-making, and the Federal Reserve is responsible for interpretation and implementation.
This is like the past dynasties, if the emperor makes a decision that violates human nature, how should the prime minister explain and implement it?
The emperor may be capricious, or he may be for his world, but the prime minister is not qualified to pick and choose, this is the situation of the Federal Reserve.
The core question now is whether to cut interest rates or not? If so, by how much?
First of all, whether to cut interest rates or not, we have discussed it several times these days, if you look at the five economic data released since September, there are reasons for cutting interest rates and not cutting interest rates, in other words, whether to cut interest rates or not to cut interest rates is between the two.
What 5 economic data have been released since September? To what extent do they contradict each other? Let's briefly recap.
Among the five data, the United States Department of Labor surveyed job openings, ADP employment in August and manufacturing PMI in August, which were extremely weak, which supported a rate cut.
However, the non-farm payrolls and unemployment rate in August showed that the United States job market did not deteriorate significantly, and the unemployment rate also fell.
At the same time, the CPI in August just stepped on the 2.5% line, and the core CPI month-on-month growth rate rebounded to 0.3% from 0.2% in the previous month. Both of these data are against a rate cut.
If you are the big guy behind United States, will you choose to cut interest rates in the face of this situation?
The answer is simple, of course, there will be no interest rate cuts! Because you don't want to cut interest rates, since it's okay to cut interest rates or not, why do you want to cut them?
However, there is always an eventual event. The bigwigs behind the scenes in United States are not alone, they will also fight, because not cutting interest rates represents the interests of some people, and cutting interest rates represents the interests of others.
In the event of a fight between the bigwigs behind the scenes in the United States, and those who advocate not cutting interest rates lose, and the final decision is to cut interest rates, then how much will it be reduced?
There are currently three options: 25 basis points, 50 basis points, and 75 basis points.
Just a week ago, the market was largely unanimous about a 25 basis point rate cut, when the probability of a 50 basis point cut was less than 2%.
However, from September 11, there was a sudden wind blowing in the market, and the idea of a 50 basis point rate cut prevailed.
For example, Nick Timiraos, the Fed's mouthpiece, openly discussed that a 25 basis point and 50 basis point rate cut is the Fed's dilemma; The Wall Street Journal made it clear that interest rates should be cut by 50 basis points.
Former Fed member Dudley has publicly stated that he thinks there will be a 50 basis point rate cut because Powell prefers a proactive approach.
As a result, the probability of a 50 basis point rate cut soared to 59% yesterday.
In addition, the most dramatic news yesterday was a joint letter to Powell by three Democratic senators, demanding a 75 basis point rate cut. Some experts believe that this is the best assist for a 50 basis point rate cut.
So, now the most interesting thing is that if the Fed cuts interest rates by 25 basis points, it becomes not in line with market expectations, but it takes care of the face of the Fed and the bigwigs behind the scenes.
Although the 50 basis point interest rate cut is in line with market expectations and means huge benefits to the market, it has become a solid slap in the face.
Last week, JPMorgan CEO Dimon thought that with the Fed's virtues, they would only cut interest rates by 25 basis points, because a 50 basis point cut would be considered a risky move.
Yesterday, David Kelly, chief global strategist at JPMorgan Asset Management, said that the Fed's interest rate decision this week may not solve the core problems facing the market.
He noted that futures market prices suggest a full 100 basis points or more of a rate cut by the end of December, but it is clearly difficult for the Fed to do so, with Fed officials last announcing their projections expecting only 25 basis points in 2024.
The Fed is currently in an awkward position, no matter whether it cuts interest rates or not, and no matter how much it cuts, it will not be satisfactory, so why not grit its teeth and continue to insist on high interest rates?
So, don't be surprised if no rate cuts are announced on Thursday.