The price index PCE, a key indicator closely watched by the Federal Reserve, rose 2.5% year-on-year in June. Next Wednesday, another key inflation indicator, the Consumer Price Index (CPI), will be released, which will further affect the market's expectations of Federal Reserve policy.

On August 9th local time, Eric Rosengren, President of the Boston Federal Reserve, stated that if the data is as expected, it would be 'appropriate soon' to start relaxing policies; whoever occupies the White House will definitely not affect the assessment of the economic situation and will not affect the outlook for the future and appropriate policies. Rates are expected to be lower in a few years; it is indeed expected that there will be some relaxation of monetary policy in the next few years, but the magnitude, timing and speed of adjustments will be determined by the data.

Rosengren stated that significant progress has been made in reducing inflation, and this has been achieved while maintaining a healthy labor market. The Federal Reserve will release a new economic forecast summary in September, including the outlook of the 19 members of the FOMC based on the data seen so far. It will include our outlook for rates at the end of 2024, 2025 and 2026.

Chicago Federal Reserve Chairman Austan Goolsbee said on Thursday that the Federal Reserve pays attention to the market, but the market does not dominate policy. It is not intended to respond to the stock market; policy is still tight. No matter what measures the Federal Reserve takes, there will always be dissenting voices. What the Federal Reserve can do is to list the criteria for lowering, maintaining or raising interest rates.

Former New York Federal Reserve Chairman Dudley stated on August 7th that two weeks ago, he personally changed from a hawkish to a dovish stance, giving up support for further rate hikes by the Federal Reserve and advocating an immediate rate cut to avoid an economic recession. In the past two weeks, more evidence has emerged that the U.S. labor market is trending toward weakness, while inflation is further slowing. The longer the Federal Reserve waits, the greater the potential damage it may cause. Federal Reserve members estimate that the neutral rate ranges from 2.4% to 3.8%, which means that the current effective federal funds rate of 5.3% is still far from neutral. Once an economic recession becomes a reality, the Federal Reserve will need to cut rates to 3% or lower. It is expected that the Federal Reserve may cut interest rates by 25 or 50 basis points at the September meeting.

Tom Barkin, President of the Richmond Federal Reserve, holds a cautious and optimistic attitude towards the future direction of the U.S. economy. On August 8th local time, Barkin pointed out that the Federal Reserve now has time to evaluate whether the U.S. economy is entering a normal orbit or whether more active measures are needed to deal with potential economic weaknesses.

Barkin is optimistic about the prospects for inflation, expecting positive inflation data in the coming months, and believes that recent deflationary trends are likely to continue. He stated, “In a healthy economic system, we can take time to observe and determine whether the economy is gradually recovering to a normal state, which will allow us to adjust interest rates in a stable and cautious manner. However, he also emphasized that when necessary, the Federal Reserve will have to take action.”

Barkin stated that the economic performance over the past few months has been quite good in terms of overall and breadth, and all aspects of inflation seem to have stabilized. Based on the ongoing dialogue and analysis, he holds a relatively optimistic view of the sustained stability of the economy.

On the same day, Jeff Schmid, president of the Kansas City Federal Reserve Bank, also gave a speech at the annual meeting of the Kansas Bankers Association in Colorado Springs, expressing optimism about recent inflation data. Schmid believes that recent data shows that inflation is cooling down, providing a basis for the Fed to lower interest rates.

Last week, the Fed decided to keep its policy rate in the range of 5.25% to 5.50%, a level that has lasted for more than a year. But at the same time, the Fed also hinted that it may begin to lower borrowing costs next month as inflation and employment risks gradually balance out.

Although shortly after the Fed's policy decision was announced, a weak employment report sparked concerns about an economic downturn, Schmid holds a different view. He believes that despite the rise in the unemployment rate, the economy still has resilience, strong consumer demand, and the labor market is cooling down, but still healthy overall.

Schmid believes that the current Fed policy stance is not overly strict, and in order to further reduce inflation, the labor market needs to cool down further. He also stated that if the economic situation deteriorates further, his views may change, but he is not yet ready to support a rate cut.

According to CME's 'Federal Reserve Watch', the probability of a 25 basis point rate cut by the Federal Reserve in September is 28.5%, and the probability of a 50 basis point rate cut is 71.5%. The probability of cumulative rate cuts of 50 basis points by November was 19.3%, the probability of cumulative rate cuts of 75 basis points was 57.6%, and the probability of cumulative rate cuts of 100 basis points was 23.2%.

Editor/Emily