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Will the Fed cut interest rates this year? My basic judgment is that it will not, unless the US labor market suddenly deteriorates or there is major adverse news about AI technology innovation. Although the point chart has shown a clear ranking of interest rate cuts since the second quarter; and although the recent speech of Fed Chairman Powell has clearly stated that "interest rate cuts are on the table."

How to understand the current US labor market

In early August, major stock markets around the world experienced dramatic ups and downs. With the latest US unemployment rate reaching 4.3% in July, coupled with the interest rate hike by the Bank of Japan to end the pressure of imported inflation caused by the continued depreciation of the yen, a large-scale reverse carry liquidation of international liquidity capital occurred - selling US dollar-denominated financial assets and returning the almost zero-interest yen financial loans in the past. This operation caused the US and Japanese stock markets to plummet at the same time on Monday, August 5. The panic index once jumped to 65. After that, the number of unemployment benefit applications in the United States announced last Thursday unexpectedly fell sharply. The market seemed to have regained confidence. As of last weekend, the US stock market had basically rebounded to the level before the crash. Then, US retail sales in July increased by 1% month-on-month, far exceeding expectations. The three major stock indexes were jubilant and rose collectively, with a momentum to continue to set new historical highs. Although technology stocks were slightly differentiated, they still led the gains overall.

The inconsistent U.S. labor data has aroused market concerns about whether the predictions of the Sam rule can be fulfilled. Since the difference between the three-month moving average unemployment rate and the lowest value in the past year has exceeded 0.5, according to the law revealed by the rule, the U.S. economy is about to fall into recession. Therefore, the Federal Reserve should immediately cut interest rates. However, even before the retail data came out, the Fed's statement was ambiguous, with hawkish and dovish arguments mixed.