Will Fed Cut Rates Amid Stalled Depreciation and Inverted Yield Curve?

This morning, it was observed that the depreciation of the US dollar is hard to advance. After the US dollar index surged to 101 points last week, it has been difficult to depreciate further. Although this is a clear repair of the depreciation compared to the high of 106-105 points this year, it is still far from the overvaluation level of 18% assessed by Goldman Sachs in the US. The US dollar remains overvalued, which may be the key concern for the market's repeated speculation on the Federal Reserve's interest rate cuts. However, it is a fact that the expectation of the Federal Reserve's interest rate cuts has stimulated the depreciation of the US dollar. The US dollar index appreciated by 5% in the first half of the year, and has depreciated by 5% in the past two months in the second half of the year. The economic benefits between them are the main driving factors. Faced with the market's expectations for the Federal Reserve's interest rate cuts in September, will the Federal Reserve hastily cut interest rates because of the overvaluation of the US dollar? Can the Federal Reserve's interest rate cuts help the US dollar depreciate? Especially when the fact that the US economy is improving is not suitable for the choice of loose monetary policy and interest rate cuts, will the Federal Reserve's interest rate cuts lead to new risks of economic overheating and monetary regulation deviation? The Federal Reserve is at a critical moment of interest rate decision-making, and the depreciation of the US dollar may be the top priority. The US economy's benefits stimulate the appreciation of the US dollar, and the Federal Reserve's interest rate cuts stimulate the depreciation of the US dollar. Who will win and who will lose remains to be seen.

On the one hand, the benefits of the US economy are the resistance to the depreciation of the US dollar and also the focus of the new economic cycle assessment at a higher level of interest rate hikes by the Federal Reserve. The current improvement of the US economy is very clear, among which the second quarter's economic revision value has risen to 3%, which is an important parameter for the overall situation of the economy; in addition, the current US employment topic is stable and not deteriorating, and the fluctuating unemployment rate of 4.3% is still a relatively low level in US history. It is expected that the new unemployment rate for the weekend may fall back; the number of initial unemployment insurance claims remains basically stable, and the number of employees and income levels are in a stable state, which is also a key point of potential concern for wage inflation. The data variable of the Federal Reserve's interest rate cuts is worth vigilance; especially the US consumer confidence has some fluctuations, but it has not declined sharply. The latest US Conference Board consumer confidence index in August rose to 103.3 from the revised 101.9 of the previous month, higher than the market expectation of 100.7. The US consumer confidence data has been rising for five consecutive months, and the current short-term prospect index based on consumers' expectations of income, business, and labor market conditions has improved in August to 82.5. The latest economic brown book of the Federal Reserve shows that the economy has fluctuations, but its clever wording is to mix comments on the economy being flat and declining, but there are still 3 states with economic activity growth. The latest brown book was edited by the Cleveland Federal Reserve based on information collected before August 26, and the report includes information and comments on business conditions within the jurisdiction of 12 regional Federal Reserve banks. Especially the number of states and regions with flat or declining economic activity increased from 5 in the last issue to 9, with 3 jurisdictions experiencing economic growth, but the survey shows that it is generally expected that economic activity will remain stable or improve in the next few months. The logic and wording of the Federal Reserve's brown book to cater to the Federal Reserve's interest rate cut sentiment contrast greatly with the real health and stability of the US economy, which makes the Federal Reserve's interest rate cut have more speculation, which is inertia, but the stability of the US economy is an important logic and background support for the strong appreciation and difficulty of depreciation of the US dollar. This is a challenging parameter for the September Federal Reserve meeting. The comments and expectations of the new economic cycle of the US economy require the Federal Reserve to make extraordinary decisions to cut interest rates, while the new economic cycle of the US economy supports interest rate hikes and is not suitable for interest rate cuts. The choice of higher interest rates may match the characteristics of the US economy. The US economy surpassing the global economic level is the focus of the Federal Reserve's monetary policy, which is also the key basis and preference for the support of the US dollar.

On the other hand, the reversal of the US bond yield curve indicates that the US economy has not entered a recession and is not suitable for interest rate cuts, and it may even lead to economic overheating. The current hot topic of US bonds is due to the special characteristics of the US fiscal year, as well as the means of theoretical targeting of economic recession concerns caused by the choice of US dollar interest rates. The expectation of the Federal Reserve's interest rate cuts and economic logic are reference inducement strategies. However, the current sudden change in the logic of matching may be a denial of the Federal Reserve's interest rate cuts, which is the variable of US employment and inflation parameters, but the market's emotional extremism, or the need for technical operations to deliberately speculate on topics. This is to create momentum for the US economy to衰退 to stimulate the depreciation of the US dollar to provide arguments for the Federal Reserve not to cut interest rates as the essence, on the contrary, creating momentum for economic recession or the Federal Reserve to cut interest rates is a choice of public opinion application and technical operation, but not the real and logical truth of the US. With the emotional extremism of the market and officials in the speculation and revision of US labor force data, this further promotes the Federal Reserve's interest rate cut bets, but it shows a different situation from the short-term end of the US bond yield curve inversion, which last occurred on August 5 when the European and American stock markets fell sharply due to poor non-agricultural data. Today, in the appreciation of the US dollar and the decline of the stock market, the decline in US bond yields changes the parameters affecting this forward-looking economic indicator, that is, the 2-year and 10-year US bond yield curves have ended the inversion again, which is the second time since June 2022, and the 10-year US bond yield has briefly exceeded the 2-year short-term bond yield for the second time in two years. Historically, the inversion of the US bond yield curve is usually a harbinger of economic recession. In March 2022, as the Federal Reserve started the tight monetary cycle, the US bond yield curve appeared inverted. In March 2023, the 2-year US bond yield was once 111 basis points higher than the 10-year yield, setting the largest inversion since the early 1980s. The short-term US bond yield is higher than the long-term yield, that is, the curve is inverted, which is essentially pricing the future economic growth slowdown as a parameter, indicating that holding long-term bonds is lower than the short-term and medium-term bond yields, which is a risk warning - that is, economic recession. The improvement of the US bond yield curve inversion means that there is a brief economic fluctuation, but it is expected that the economy is likely to be stable in the long term and will not reverse. The new cycle of the US economy, with technological innovation or structural improvement, is a new structure and new theoretical creativity that is a symbol of American individuality. However, to cater to the expectation of the Federal Reserve's interest rate cuts, even if the US bond yield curve ends the inversion, the public opinion still swears that the economy has problems and predicts that the US stock market will open black in September, which is also a negative signal for the economy. This is too obvious to be a speculative move for interest rate cuts that has reached an extreme and unreasonable state. The huge changes in the US economy are the key reference for the Federal Reserve. Historical theoretical logic is not suitable for the simplification of the risk of the Federal Reserve's interest rate cuts, and the hasty nature of emotional comparison logic will be a killer for misjudging the US economy. The logic of the Federal Reserve's interest rate cuts as a means of stimulating the economy remains unchanged. If the interest rate cuts are beneficial to the economy, they will be a catalyst for economic overheating. However, at the same time, if the US economy is overheating and even叠加 The rebound of global inflation means that the Federal Reserve's interest rate cuts are an increase in the risk of manufacturing misjudgment for the US dollar, not a reasonable operation for the Federal Reserve's interest rate cuts.

So facing the benefits of the US economy, usually the economic growth in the third quarter of the US is a high base. In 2023, the US economic growth was 4.9%, and it is expected that the economic growth in the third quarter of 2024 will further support the Federal Reserve's tight money policy. The internal coordination and digestion of the US are difficult to advance. In the future, the US will rely on the logic of all capital and commodity combinations in the overseas market to promote the depreciation of the US dollar, which will be the biggest risk in the future. It is also the arrival of the Federal Reserve's interest rate hike inflation support. The speculation of the Federal Reserve's interest rate cuts has already been a short-term plan, not a long-term strategic move. As Atlanta Federal Reserve Bank President Bostic said, for the first time since 2021, the Federal Reserve's dual mission of stabilizing prices and full employment is in balance, but he added that he is "not fully ready" to announce the victory over inflation. He specifically pointed out that "history tells us that relaxing monetary policy too early is a dangerous strategy that may reignite inflation and continue to plague the economy for months or even years." His words hit the point that the Federal Reserve's interest rate cuts should not be too hasty or hasty, and the warning is the key. September 18th is approaching, but the future US employment and inflation, two key data, will be the key period for the Federal Reserve's parameters. How the Federal Reserve will choose in the future still has variables and even reverse the wind direction, which is a greater risk factor. The violent fluctuation of the financial market or the depreciation of the US dollar speculation design is more worth paying attention to and preventing.