Comment: Repeatedly jumping overnight Powell facing new challenges between inflation a

Source: Bloomberg

When will interest rate cuts start?How fast?Where is the end point?

Fed officials basically agree that the timing of interest rate cutting is coming.The market price reflects that the 25 base points of interest rate cuts in September are already on board.

But as the US monetary policy is close to a key turning point, there will be several important points in the next few months.The Federal Reserve President Powell and his colleagues weigh on the two risks. They hope that while eliminating the threat of inflation, they will reduce the interest rate in a timely manner to prevent the rapid deterioration of the labor market.

"They are not considering the first two interest rate cuts, but the overall strategy of the next six to nine months," said Derek Tang, an economist at LH Meyer/Monetary Policy Analytics.

The central bank often adopts this risk management strategy when the economic environment is highly uncertain.In other words, they focus on the two goals, and now they have to decide which goal is more risky.

Thinking about this problem is not easy.Although the Fed has maintained interest rates in the 5.25%-5.5%interval for more than a year, as the inflation decreases, the actual interest rate is becoming higher.Faced with the slowdown of employment growth, the Federal Public Marketing Committee has the biggest differences about which risks.

Michelle Bowman, Fed, and Raphael Bostic, president of Atlanta Federal Reserve, are not necessary to worry. They want to see more evidence of slowing inflation, and they believe that the labor market is still tough.Officials in this camp pointed out that some reasons for rising unemployment rates are that more unemployed people are actively looking for jobs.In addition, although the company slows down the recruitment speed, it has not increased its layoffs.

For this group, Powell can use the July CPI report to prove that the 25 base points at 25 rates at a rate cut in September are unlikely to stimulate inflation. In July, the core CPI of food and energy rose by 0.2%.1.6%, the lowest since February 2021.

Other officials have a red line on the current 4.3%unemployment rate.

San Francisco Fed Chief Mary Dala said on August 5, "We can now confirm that the labor market is slowing down. The very important point is that we cannot slow down too much to fall into landslide."

The strength of the labor market has impact on the US economy.In recent years, the tightness of the labor market has brought obvious benefits to the economy, which has attracted many people to join the labor market. They have increased their wages, so they can better resist the impact of inflation.

But this situation may soon change, and the unemployment rate rose from 3.7%in January to 4.3%in July that the impact of the economic slowdown will bring.The growth rate of wages has slowed, and the unemployment rate of African and Latin American descent has increased from the end of last year.

"The Federal Public Marketing Committee has been deliberately allowing the economy to slow down to release excessive pressure," said David WilcoX, the current head of the Federal Reserve.This kind of vulnerability appears. "

Ensuring the soft landing of the economy is Powell's primary task, which will determine the evaluation of future generations.He admitted last month that he couldn't sleep in order to make the economy softly.

The credibility of the Federal Reserve also affects decision -making.Powell and his colleagues reacted to the soaring inflation. At the beginning, they said that high inflation was only temporary.If the interest rate has been maintained for a long time, it will cause economic recession, and it will definitely irritate the two parties of Congress and affect public emotions.

Former President Donald Trump and his campaign partner JD Wans felt that it was time to question the role of the Federal Reserve. Both said that the governors should have a greater say in monetary policy.

Risk Management

Powell has hinted that he will adopt risk management methods to help spend the next few months.Historical experience shows that the consequences of making mistakes in any direction may be that employment prospects are even worse.In addition to the epidemic period, several modern economic recessions have had a profound and long -lasting impact on the labor market. Especially for workers with the lowest income, some people have eternal withdrawal from the labor market.

Considering this, the Fed may not only convey a path that interest rates return to a balanced or neutral level, but also seek to offset the risk of paying a high price.The market is already possibly hedging, and it is expected that a total of nearly one percentage points will be reduced by the end of the year.

"At present, the main risk is that the labor market has a strong momentum, and the economy may fall into the recession that you do not need to see," WilcoX said."I expect the baseline for the first time to cut interest rates is 50 base points, and the labor market cannot be weakened anymore."