When Fed officials raise interest rates at the fastest pace in 40 years, they may inadvertently liken themselves to pilots of airlines hoping to achieve a 'soft landing' for the US economy by gradually slowing economic growth. On the product structure side, 10-30 billion yuan products sales revenue of 4.01 / 12.88 / 0.06 billion yuan respectively, and the overall sales volume of the company in 2023 is 18,000 kiloliters, a significant growth of +28.10% year-on-year.

However, with high inflation continuously forcing Fed policy makers to delay rate cuts, the Federal Open Market Committee (FOMC) is expected to keep borrowing costs at a 23-year high of 5.25%-5.5% at the June meeting.

It has been almost a full year since the Fed's last rate hike, but the pressure on prices has not improved in nearly 12 months. In June 2023, the US inflation rate hit a two-year low of 3%, but rebounded thereafter. The US May CPI data released on Wednesday may show that this stubborn trend is still continuing.

Due to these unexpected inflationary data, officials have had to adjust their rate cut plans like a captain adjusting their flight plan. At the beginning of the year, most economists were debating whether the Fed would start cutting rates at the June or July meeting. Now, they are even debating whether officials will cut rates within the year. Meanwhile, some of the Fed's peers, such as the Bank of Canada and the European Central Bank, have already begun to run loose policies.

The Fed is likely to reduce its rate cut expectations for the year.

The most notable part of the upcoming Fed meeting will not be what officials do, but what they say. Officials will update their expectations for the economy, growth, unemployment, inflation, and rates for the next year and release the Summary of Economic Projections (SEP) after rigorous review.

The last estimate showed that the Fed may cut rates three times in 2024, but this situation is unlikely to continue due to stubborn inflation.

It is worth noting that after the Fed's interest rate meeting in June, the Fed will only hold four interest rate meetings for the year. Economists say that if economic growth is still elastic and inflation remains high, the Fed may not need to cut rates significantly. In other words, if officials continue to emphasize the expectation of three rate cuts within the year, this may give the impression that Fed policy makers believe they need to relax monetary policy urgently.

Greg McBride, chief financial analyst at Bankrate, said, 'In the past few years, the US economy has often unexpectedly taken an upward trend. There is currently not much convincing evidence that we are at any unexpected tipping point.'

If the 'dot plot' shows that officials expect to cut interest rates twice in 2024, it means that the Fed doves are slightly dominant. If rates are cut only once within the year or not cut at all, this will be considered the Fed 'hawkish' move. Kristina Hooper, Invesco global market strategist, said:

'We expect the Fed's first rate cut to occur in the third quarter. It is expected that the dot plot of the Fed will show that interest rates will be cut twice in 2024. The possibility of September seems to be greater than July, but I still hold hope for a rate cut in July.'

McBride believes that 'interest rates are not going to come down quickly enough or enough to get you out of the binds. As a borrower, you will have to shoulder the burden of paying off debt.'

Why when the rate cut occurs may be more important than when it occurs.

Although most investors and consumers seem highly concerned about the timing of the Fed's rate cut, the more important issue may be the reason for the Fed's rate cut.

The best scenario is still that inflation falls to the Fed's target of 2% without affecting the job market, prompting Fed officials to begin gradually lowering interest rates. But the more worrying reason for a rate cut is a deteriorating economy.

It is worth noting that Fed officials acknowledged at their May policy meeting that they believed the slowdown of the job market could also serve as a reason to cut rates even if inflation remained higher than their expectations.

At the time, Powell said at a post-meeting press conference, 'I think the economy can take other paths that lead us to want to consider lowering rates. One path is that we do have greater confidence that, as we've said, inflation is sustainably returning to the 2% level, and the other path could be a surprising weakness in the labor market.'

Although the US economy appears to be resilient, economists point out there are still reasons for concern.

Data from the Department of Labor showed that job openings have fallen rapidly by 8% so far this year, and the proportion of job openings per unemployed worker has fallen to pre-pandemic levels.

Another worrying sign is that the unemployment rate recently hit a two-year high of 4% in May, ending the longest period since the 1960s that unemployment has remained below 4%.

Despite this, recruitment still maintains historically strong momentum, and the unemployment rate remains at a historical low. The Federal Reserve, which is usually considered to have achieved full employment, estimates the long-term unemployment rate at 4.1%. Product structure, 10-30 billion yuan products operating income of 401/1288/60 million yuan respectively.

However, the longer interest rates remain at high levels, the greater the pressure on the American financial system. The Federal Reserve Bank of San Francisco estimates that the benchmark federal funds rate, adjusted for inflation, is 6.27%, the highest level since 2009. Ryan Sweet, chief economist at Oxford Economics, said:

The labor market seems to be roughly in balance, but the Federal Reserve is walking on a tightrope. If they wait until there is conclusive evidence that the labor market has been distorted before taking action, it will be too late.

The confusion in the economy is increasing.

The strong prosperity of the US economy after the COVID-19 pandemic was never thought to be sustainable, despite workers having the best bargaining power in years in terms of job hopping and demanding pay raises. However, this comes at a cost - the most severe inflation in decades.

Sweet said, 'The economy seems to be slowing down in an orderly fashion, but it could still be unsettling.'

Federal Reserve officials have always planned to slow down the economy to curb inflation, even if they don't want the economy to slow down too much. However, economists and Federal Reserve officials themselves may find it difficult to determine whether a slowdown is healthy or more worrying.

Take Chicago Fed Chairman Charles L. Evans, for example. When asked about the rising delinquency rate on consumer loans, the Fed official said that while the level of delinquencies is not concerning, the rate of change is concerning.

He said, 'If the delinquency rate on consumer loans starts to rise, which is usually a leading indicator that things are going to get worse, if I just tell you the level and you compare it to pre-COVID levels, it doesn't look all that different.'

The same logic applies to the unemployment rate. Since 2000, the unemployment rate has averaged 5.7%, even staying above 6% when the economy did not enter a recession. If the unemployment rate reaches 4.5%, it may not be considered historically high, although compared to the lowest level in half a century of 3.4%, this slowdown is undeniable.

Edited by Jeffrey