US Inflation Whistleblower: Fed's 25 basis points vs. 50 basis points rate cut probability in September

On Friday, the whistleblower of high inflation in the United States and former Treasury Secretary, Summers, stated that the August non-farm payroll report in the United States was not particularly bad, but it did make it more difficult to predict the extent of a possible interest rate cut by the Federal Reserve this month. Summers believes that the probability of a 50 basis point or 25 basis point rate cut by the Federal Reserve at the September meeting is about the same. However, overall, the size of the Federal Reserve's first rate cut is not ultimately important.

Summers stated that Federal Reserve officials will closely monitor the development of the economic outlook and adjust policies to adapt to the situation. "If the economy weakens significantly, they will cut rates significantly. If the economy does not weaken significantly, they may cut rates at the pace of one notch (25 basis points) per meeting."

The latest non-farm report in the United States is mixed, with non-farm employment increasing by 142,000 in August, below the expected 165,000, and revisions downward for July and June; the August unemployment rate decreased from 4.3% in July to 4.2%, marking the first decline since March this year; and August's year-on-year and month-on-month wage growth rates were higher than market expectations and July.

In response to this, Summers pointed out that these numbers certainly do not show clear weakness, but if you are concerned about the recent trend in statistical data, then they certainly do not provide you with evidence of economic health.

Summers currently expects that the United States will not fall into a recession. If this is indeed the case, then the financial markets have overly high expectations for the Federal Reserve's future accommodative policies. The two-year U.S. Treasury yield fell to 3.59% on Friday, reaching its lowest level since the U.S. regional bank crisis in March 2023