The Fed released the strongest "dovish" signal of interest rate cuts! Powell publicly announced that the Fed has officially entered a rate cut cycle. Subsequently, the global market ushered in a big rise, and the corresponding US dollar index weakened rapidly, returning to around 100.7. Powell said that the timing and pace of subsequent rate cuts depend on data, prospects and the balance of risks. The latest data shows that the probability of the Fed cutting interest rates by 25bp in September is 67.5%, and the probability of cutting interest rates by 50bp is 32.5%.
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The market is now betting not on whether the Fed will cut interest rates, but on how much. The Fed has long been concerned about whether to cut interest rates, and whether inflation returns to the Fed's target inflation rate of 2% is the core and most critical indicator of whether the Fed will cut interest rates. I think that although the Fed has released a "dovish" signal, it may not actually cut interest rates.
This is not without precedent. In the 1980s, the Federal Reserve raised interest rates continuously until the federal interest rate reached 22%. During that interest rate hike cycle, there were also constant "dovish" interest rate cut signals. The final result was that the economies of Japan and South Korea exploded, causing Japan and South Korea to fall into a major economic recession. Subsequently, interest rates began to rise again in 1994, 1999, and 2004, triggering the Asian financial crisis, the bursting of the Internet bubble, the US subprime mortgage crisis, and the collapse of the economies of major economies.
The ultimate beneficiaries of the Fed's rate hikes are the capital tycoons led by the United States, such as Buffett and Soros, and the Fed actually protects the interests of these tycoons. Objectively speaking, since the new round of rate hikes started in 2022, these tycoons have not gained any actual benefits except for reaping the benefits of Japan. The economies of major economies around the world are still running steadily and there is no sign of being blown up. If the interest rate is cut now, it will almost be in vain.
Of course, small countries like Venezuela and Zimbabwe are exceptions.
So, will the Fed definitely cut interest rates now that it has released a "dovish" signal? I think we should not be blindly optimistic now. If the Fed cuts interest rates, leaving China aside, Japan may be the first to breathe a sigh of relief. Because once the Fed cuts interest rates, the yen will appreciate rapidly against the US dollar in the context of Japan not raising interest rates. The ones who will be hurt will definitely be those international capital tycoons.
For a long time, these tycoons have been lending cheap yen (the yen interest rate is currently 0.25%, which is the result of two interest rate hikes after 2024, while Japan previously implemented zero interest rates or even negative interest rates), and have been using leverage to speculate on Japanese and US stocks. Once the yen appreciates rapidly, it means that their interest costs will rise rapidly. This is obviously not the result these tycoons want to see.
Therefore, I think it is possible to hype up the expectation of this "dovish" signal that has not yet been implemented. But for A-shares, a 25bp interest rate cut will not have any essential impact. The logic of A-shares is internal rather than external. Please refer to another article in this account. The link is as follows. In short, be careful not to be fooled, and don't let a false shot seriously hurt yourself. #杰克逊霍尔年会 #美联储何时降息？
