Cut rates before the election? Powell's answer may soon be revealed!

The June CPI report in the United States, which showed a comprehensive cooling, has intensified market expectations for a rate cut by the Federal Reserve before the end of this year, possibly even before the November election.

This surge in bets has led to a recent decline in the US dollar, with multiple market sectors such as bonds, small-cap stocks, and residential builders soaring.

Analysis from the global research firm Gavekal Research indicates that compared to the end of last year, the current inflation data is more conducive to a rate cut. As of December last year, the three-month annualized CPI was below the Fed's 2% target after adjustments. Furthermore, the core CPI, which excludes volatile food and energy prices, is also below the target, with a three-month annualized growth rate of 1.8% after adjustments.

Gavekal Research points out that if the inflation rate continues to remain low and the Fed is confident in maintaining this state, then it is highly likely that policy rates could be lowered before the end of 2024, possibly even before the election.

Strategists stated in a report, "Ideally, Fed Chair Powell may lean towards not changing rates before the election, but this view may be overturned by data."

The research firm reviewed historical precedents of the Fed changing rates in the months leading up to a presidential election.

Since 1974, in the 10 months before 13 presidential elections, the Fed changed rates 8 times and kept rates unchanged 5 times.

This history indicates that if economic indicators prove necessary, the Fed will not shy away from making policy adjustments during an election period.

While the market reacts to the latest inflation data and its impact, the Fed, under Powell's leadership, remains committed to responding to economic data with policy actions.

Therefore, Gavekal Research's strategists conclude that if the current downward trend in inflation continues, a rate adjustment is likely to occur before the November election.

The Fed will enter a quiet period before the meeting this Saturday, during which decision-makers led by Powell will make important comments this week, evaluating the issue of slowing inflation and considering whether to signal the start of a rate cut as a result.

As inflation gradually approaches the 2% target and concerns about how long the strong job market can last intensify, the Fed is likely to use these last few days to indicate that a rate cut is imminent, or explain why recent data still does not support a shift to a more accommodative monetary policy.

Powell will be the first to speak with David Rubenstein, Co-Executive Chairman of The Carlyle Group, at midnight the next day. As for other Fed officials, Bullard's speech at the Kansas City Fed event may be particularly noteworthy. He has been an important voice in the inflation debate, considered a hawk, but recently pointed out through his own research that the job market is in a phase where further weakness could lead to an accelerated rise in the unemployment rate.

Analysts at Citigroup wrote last Friday, "We expect a strong signal in July indicating that the Fed will begin cutting rates at the upcoming meeting, possibly as soon as September if the economy develops as expected." Currently, data from the Federal Reserve Watch (FedWatch) of the Chicago Mercantile Exchange Group (CME Group) shows that weak inflation in June has prompted investors to raise the probability of a rate cut in September to over 90%. In addition, some major banks and investment institutions have advanced their expectations for a rate cut