Is the Fed's rate cut in September a "done deal" or "premature"? Institutions have differing opinions

According to the Wise Finance APP, after the Federal Reserve's interest rate decision, as expected, it announced to maintain the interest rate unchanged, that is, to keep the federal funds rate in the range of 5.25 to 5.5%, and mentioned that the 2% inflation target has made some further progress. Federal Reserve Chairman Powell hinted at a press conference after the meeting that the authorities may start a rate cut cycle as early as September. The market generally believes that there is a high chance of a rate cut by the Federal Reserve in September, but Hang Seng predicts that the rate cut in the United States this year will be limited, and Hong Kong dollar interest rates may still remain at a relatively high level in the second half of the year; Shang Bo Investment believes that the market's assumption of a rate cut in September is a misjudgment, emphasizing that if inflation data does not meet the standard, it may disrupt the rate cut plan.

Fidelity International's Macro and Strategic Asset Team stated that the Federal Reserve, as expected by the market, maintained the interest rate unchanged for the 8th consecutive time. However, due to clear progress in inflation and the labor market, it brought out a signal for a rate cut. The trend of slowing inflation has expanded from commodities to core services excluding housing and housing services; the employment level has returned to pre-epidemic levels, but the maximum target is facing downward risks, and caution is being maintained against potential sharp declines.

Fidelity pointed out that Powell revealed the start of a rate cut cycle in September. Although this interest rate decision lacked forward-looking guidance, the post-meeting statement and press conference still sent out strong signals. If inflation continues to slow as expected, economic growth maintains a reasonable strong level, and the labor market remains stable, there is a possibility of discussing a rate cut as early as the September rate meeting, but a first rate cut of 0.5% is not currently being considered.

Fidelity believes that the uncertainty surrounding the Federal Reserve's monetary policy this year has significantly decreased, and the policy direction in 2025 will depend on the results of the U.S. presidential election and the development of future trade and fiscal policies.

On the macro side, Fidelity believes that the probability of a soft landing (low growth and low inflation) for the U.S. economy has increased, and in response, the Federal Reserve will join the rate cut ranks. Loose financial conditions should not lead to recession risks, so a positive view is maintained on risky assets. However, geopolitical risks are heating up, along with uncertainty about the U.S. presidential election. Maintain a positive outlook on stock investment, remain cautious on credit bonds; recommend a global high-quality dividend strategy, paired with U.S. high-quality bonds as the main core asset allocation to counter market volatility; bullish on Japanese stocks and technology stocks.

Kelvin Tse, Director and Chief Economist of Hang Seng Bank's Economic Research Department, stated that recent U.S. data shows that local inflation is still on a downward trend, economic growth is slightly lower than last year, and the labor market is also weakening slightly. If future data reflects these conditions remain unchanged, the Federal Reserve may cut interest rates by 25 basis points in September, and then consider another rate cut in November or December.

Tse believes that the Federal Reserve is expected to loosen monetary policy, which will further support the recovery of the Hong Kong economy. However, due to the limited cumulative rate cuts by the Federal Reserve this year, Hong Kong dollar interest rates may still remain at a relatively high level in the second half of the year, but with an increase in rate cuts, Hong Kong dollar interest rates are expected to further decline next year.

Jeff Klingelhofer, Co-Chief Investment Officer and Managing Director of Shang Bo Investment, believes that the Federal Reserve wisely did not hint at a rate cut in September in its statement at this meeting, only indicating the need to see continued improvement in inflation data, appropriately maintaining policy flexibility to avoid a situation of changing positions. The market assumes that a rate cut in September is a sure thing, but this is a misjudgment. The Federal Reserve certainly hopes for a rate cut, however, there are still two inflation data releases before the September meeting, and one substandard data point could disrupt the rate cut plan. Klingelhofer emphasized that the recent changes in interest rates are not directly related to entering a rate-cutting cycle. With a slight decrease in inflation and a slight increase in unemployment, the interest rate market has responded accordingly. However, the Federal Reserve should avoid rushing to cut interest rates. Monetary policy should aim to alleviate economic cycles rather than control them.

Klingelhofer also mentioned that Powell reiterated at a press conference that the risks of inflation and unemployment have balanced out, but still subtly hinted that September is a reasonable benchmark for rate cuts. He believes that the Federal Reserve will interpret the overall data as indicating a strong economy, and based on this situation, the risk of making decisions too hastily seems greater than the risk of lagging behind in decisions. He reminded investors not to focus only on the first rate cut, but on the frequency of rate cuts. Unless a recession occurs, once the Federal Reserve starts cutting rates, it may do so very slowly