Guotai Junan: Changes in US employment data this year affect the Fed's rate cut expectations, and inflation weights may rise again in the first quarter of next year.

The Merchants Macro Research report stated that on September 17th, local time, the Federal Reserve held a monetary policy meeting and cut the interest rate by 0.25 percentage points to a target range of 4.00%-4.25%, while maintaining the pace of balance sheet reduction. This meeting followed the tone set at the global central bank meeting in August at Jackson Hole, emphasizing the risks of slowing employment outweighing the risks of inflation. However, the economic outlook was slightly revised downwards, and Fed Chairman Powell characterized this rate cut as a "risk management" move, based on the preventive rate cut due to weak non-farm data. The dot plot on the other hand shows significant internal disagreements within the Federal Reserve, increasing future uncertainty. Furthermore, the dot plot and Summary of Economic Projections (SEP) suggest a total of 75 basis points rate cuts this year and 25 basis points each in the following two years, which is significantly lower than the market's expectation of 75 basis points rate cuts for the next two years. Based on high-frequency data and Powell's statements, it is believed that the US economy is experiencing a temporary slowdown rather than a recession, making this rate cut a preventive measure and not a significant one. A total of 75 basis points rate cuts this year should be sufficient to hedge against the risks of employment market downturn, with the possibility of rate hike expectations resurfacing after the initial rate cut. Future attention will be on the changes in US employment data in September and October. Additionally, the guidance on rate cuts for the following two years in this meeting remains conservative, with SEP showing 25 basis points rate cuts in each of the next two years, unchanged from June.