Companies lose pricing power, the Fed "won without doing anything"

One company after another has issued the same message - it is becoming increasingly difficult to raise prices quickly on consumer goods.

Companies like Kimberly, Nestlé S.A., and Procter & Gamble are among the "victims". Procter & Gamble stated on Tuesday that its price increase is the lowest in nearly three years, producing products such as Pantene shampoo, Pampers diapers, and Tide detergent.

This is a reasonable result after the severe global inflation caused by the epidemic, and it is also the reason why many economists and investors believe that the Federal Reserve will cut interest rates in the near future.

Matthew Hornbach of Morgan Stanley said in an interview, "The Fed will cut interest rates at every meeting". The potential rate cuts by the Fed are just an adjustment to the trend that companies have been emphasizing - the days of significant regular price increases for food, cars, and airfare seem to be over.

He said, "I'm not entirely sure this can be called an easing cycle, we are slowly coming out of the boil (of inflation). We expect the economy to slow down, but we are far from a recession."

The market has fully anticipated that the Fed will cut interest rates twice this year, with the rate cut at the September meeting already fully priced in by the market. The yield on the two-year U.S. Treasury bond has fallen to its lowest level since February, as investors are effectively implementing monetary easing without the Fed taking any action.

Steve Ricchiuto of Mizuho said, "The Fed has won without doing anything, the promise of rate cuts has made financial market conditions much looser than implied by the federal funds rate."

Investors are pouring into the bond market in large numbers as they anticipate Fed policy easing. Sinead Colton Grant, Deputy Chief Investment Officer and Head of Equities at BNY Mellon Wealth Management, discussed the benefits of acting ahead of the Fed, saying, "Term premiums are now priced into the bond market."

However, it is still unclear when the Fed will take action.

Ricchiuto said, "If Fed officials adjust the federal funds rate, they will face the risk of people overestimating the actions they will take", which would make the pricing of the rate cut path steeper