CPI Inflation Report: Interest Rate Cuts Triggered for Sept

The CPI Inflation Report was released this morning and I want to show you how it changed the odds of an interest rate cut for the upcoming Federal Reserve meeting in September. Ok, so before the inflation report was released, the market expectation was an 84.5% chance that the Federal Reserve will cut interest rates at their next meeting on September 17th. So this is according to the CME FedWatch tool. Now, after the inflation report, the odds of an interest rate cut have increased from that 84.5% to 94.2%. So I'll tell you that it's not 100%, it's not a sure thing, but it sure is close. But I want to clarify this information because we're seeing two different types of headlines. Ok, so you might see certain headlines like this one. This is a great example. Saying that the report shows hot inflation. Core inflation rises by most in six months. And then there's also going to be headlines like this one as well. Consumer prices rise less than expected. Ok, so which one is it? Did inflation come in hot or not? Were the results good or bad? I mean, you could be the judge, but I'll give you my interpretation as well. So today's report shows that inflation is running at a rate of 2.7%. So that was a good piece of news because it was at 2.7% the prior month. So for this one, headline inflation, no change. But if you look at core inflation, it's at 3.1%. So that's not good because it was at 2.9% the prior month. So those certain headlines saying that inflation is running hotter, that's what they're talking about. Core inflation. That was the biggest jump in six months for this particular metric. But here's what happened. Ok, so as I said, headline inflation did not go up. It stayed at 2.7%, right? And the fear was that the tariffs would spike the core inflation higher than 3.1%. It didn't happen. Therefore, the market is interpreting this as a good inflation report, coming in cooler than expected, which is why the odds of an interest rate cut in September have increased significantly. Now, after the report was released, President Trump went on to say that Jay Powell, who's the chair of the Federal Reserve, must lower the Fed Fund's interest rate now. So Trump is saying that these higher interest rates are hurting the economy. However, and fortunately, the economy is so good. Ok, so I didn't pronounce it like that to add any personal effect. I'm just reading it like how President Trump wrote it, just in case you're listening without watching. Now, I want to tell you this. So here's the situation from Jay Powell and the Federal Reserve's perspective. So the Federal Reserve has a dual mandate, maximum employment and price stability. So Jay Powell is saying that we're not going to cut interest rates because the labor market is solid and inflation is going to run hot. But according to the data that Jay Powell is looking at, the labor market is not solid, according to the disaster of a jobs report that came in, and inflation did not run hot. So therefore, I mean, I'll just tell you honestly, I don't know how Jay Powell is going to justify not cutting interest rates in September the way things that are going. But I do want you to know that the interest rate cuts, I mean, they're going to start soon. It's right around the corner. So if not in September, then there are two more meetings after that one in September for the remainder of the year. And each of those meetings are going to be fair game for an interest rate cuts. And when they resume the interest rate cuts, it's going to be an easier monetary policy. So first come the interest rate cuts, followed by quantitative easing, QE. And with an easier monetary policy is going to come more asset inflation. So I would say any market dips, you know, just me personally, I would see it as an amazing buying opportunity. And just for fun, I want to show you this. So here are the odds by the October meeting, the October Fed meeting. So there's a 62% chance that we're going to get two interest rate cuts by then. There's a 35.6% chance that we'll only have one rate cut by then. And there's a 1.9% chance that we're going to have zero interest rate cuts by that meeting. OK, so that's what happened today. And I'm going to keep you updated on this whole situation. Please subscribe. I thank you for the support. And I wish you a very nice day. Take care.