How do "the three heads" and Powell speak out? Goldman Sachs: The leadership of the Federal Reserve believes that a 25 basis point rate cut in September is the baseline scenario

After the overnight release of non-farm payroll data, the market's expectation of a 50 basis point rate cut by the Federal Reserve has increased. The "three top officials" of the Federal Reserve, Williams and one of the most influential officials, Bullard, have successively made "dovish" statements, both supporting a rate cut at the September FOMC meeting. However, neither side has explicitly stated the magnitude of the rate cut. There is still controversy over whether the rate cut in September will be 25 basis points or 50 basis points.

On September 6th, Goldman Sachs commented on the speeches of the two in a research report, stating that the leadership of the Federal Reserve believes that a 25 basis point rate cut in September is the baseline scenario. Goldman Sachs stated:

In our view, these remarks are consistent with our expectation of a 25 basis point rate cut by the Federal Reserve in September, but if the labor market continues to deteriorate, the Federal Reserve leadership is willing to cut rates by 50 basis points at subsequent meetings.

Overnight, the August non-farm payroll data in the United States fell short of expectations, adding signs of a slowdown in the labor market. However, the unemployment rate dropped from 4.3% to 4.2%, meeting expectations and dispelling the recession signal triggered by the "Sam rule". The market funds are somewhat conflicted, first pessimistically betting that the probability of a 50 basis point rate cut by the Federal Reserve in September increased from 40% to 50%, making it a fifty-fifty chance with the expectation of a 25 basis point rate cut. Subsequently, evaluations of Federal Reserve officials' speeches began.

Bullard of the Federal Reserve supports a rate cut and stated that if appropriate, he will advocate for a "preemptive" rate cut, maintaining an open attitude towards the magnitude and speed of rate cuts. Bullard believes that "there are some downside risks to employment" and he will "closely monitor" them. At the same time, he also pointed out that the U.S. job market continues to soften but has not deteriorated. The U.S. economy is neither in recession nor expected to head towards one.

The "New Federal Reserve News Agency" immediately poured cold water on Bullard's remarks, stating that Bullard did not explicitly mention a 25 or 50 basis point rate cut, leaning towards supporting an initial 25 basis point cut and explicitly keeping the option to accelerate rate cuts when new data shows further deterioration, please note his use of "if" wording.

Goldman Sachs also commented that Bullard's speech implies that he believes the baseline scenario for the September meeting is a 25 basis point rate cut, but if the labor market continues to deteriorate, he may support a future 50 basis point rate cut. Goldman Sachs stated that Bullard's description of the U.S. economy is quite positive. Bullard believes that overall economic data indicates a stable performance in the labor market and economy.

In Goldman Sachs' view, the remarks of the "three top officials" of the Federal Reserve, Williams, also seem to echo the same sentiment.

Williams stated after the data release that the Federal Reserve has made "significant progress" in achieving its dual mandate of price stability and maximum employment, with the risks to both mandates now in a "balanced" state. The inflation rate is gradually moving towards the 2% target, and lowering the federal funds rate now is appropriate.

Williams also stated that he expects the U.S. real GDP to grow "around 2% to 2.5% this year" and the unemployment rate to remain around 4% by the end of the year It is worth noting that Williams did not indicate any intention to cut interest rates by 50 basis points this month. Goldman Sachs commented that these remarks are consistent with their forecast of a 25 basis point rate cut in September