The Fed is highly likely to deliver its first rate cut in four years tonight. U.S. stocks already reacted last night by hitting a new high first—we'll talk about the rest later. Rising expectations for the initial rate cut magnitude also pushed gold to a record high.

U.S. August CPI year-on-year growth further dropped to 2.5% from July's 2.9%, hitting the lowest since February 2021; core CPI remained at 3.2% YoY, in line with expectations. This is the big picture.

Admittedly, prices have risen ridiculously in recent years. For example, my friend mentioned that the meat at Sam’s Club, which used to cost $7.99 per pound, now sells for $10.99—though this feeling exceeds the CPI increase. Compared to February 2020, overall CPI has accumulated a roughly 21% increase, but their income growth is even crazier, with average hourly wages up 22%. I always think a little inflation is actually a happy problem—if you throw away happiness just to avoid trouble, it’s kind of putting the cart before the horse. Overall, the economic growth rate in 2023-2024 has exceeded expectations, giving the Fed plenty of time to cut rates slowly.

So what’s the script for tonight?

If they cut 25 bps, the Fed thinks the U.S. economy can achieve a soft landing.

If they cut 50 bps, the Fed thinks the U.S. economy is heading for a hard landing.

If they don’t cut, the Fed doesn’t want to land—it wants to fly higher, fly higher.

And a rate hike is impossible—Chairman Powell has OCD about expectations management and would never do "no expectations management."

Futures markets basically give it a 50-50 chance, with the latter possibly higher.

But CNBC’s survey (fund managers, economists, blah blah) suggests an 84% probability of a 25-bp cut.

$China Merchants NASDAQ 100 ETF(QDII)(159659.CN)