According to the latest data from CME’s “FedWatch”, under the current complex and volatile economic situation, the market has formed a relatively clear expectation for the direction of the Federal Reserve’s monetary policy in June. Among them, the probability that the Federal Reserve will keep interest rates unchanged in June is as high as 99.9%, while the probability of cutting interest rates by 25 basis points is only 0.1%. This data reflects the widespread market belief that the Federal Reserve will hold steady in June and continue to maintain the current interest rate level.
Judging from the recent performance of the US economic data, employment growth in May was better than expected. Although the growth rate slowed down compared with the previous month, it still demonstrated a certain resilience of the economy. Strong employment data has to some extent alleviated market concerns about an economic recession and also provided support for the Federal Reserve to maintain stable interest rates. Furthermore, although the inflation data fluctuates, it is still within the acceptable range of the Federal Reserve as a whole. Under such circumstances where economic growth and inflation are relatively stable, the Federal Reserve lacks sufficient motivation to cut interest rates in June.
Looking forward to July, market expectations remain relatively stable. The probability that the Federal Reserve will keep interest rates unchanged in July is 83.4%, and the probability of a cumulative rate cut of 25 basis points is 16.5%. This indicates that the market believes that in the coming period, unless there are significant changes in the economic situation, the Federal Reserve is likely to maintain the stability of its monetary policy. However, the economic situation is full of uncertainties. Factors such as the global trade situation and geopolitical risks may all have an impact on the US economy and thereby change the direction of the Federal Reserve’s monetary policy. For instance, if global trade frictions escalate further, it may have an impact on US export enterprises, affect economic growth, and thereby increase the possibility of the Federal Reserve cutting interest rates.
For investors, it is crucial to closely monitor the dynamics of the Federal Reserve’s monetary policy. Changes in interest rates will directly affect the flow of funds and asset prices in the financial market. Take the bond market as an example. If the Federal Reserve keeps interest rates unchanged, bond prices may be relatively stable. Once interest rates are cut, bond prices tend to rise. In the stock market, changes in interest rates can affect a company’s financing costs and profit expectations, and thereby influence stock prices. In addition, the adjustment of interest rate policies will also have an impact on the exchange rate market. Fluctuations in the US dollar exchange rate will affect international trade and cross-border investment. Therefore, investors need to adjust their investment portfolios in a timely manner in accordance with changes in the Federal Reserve’s monetary policy to cope with market risks.
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