The Federal Reserve, abbreviated as Fed, is the central banking system of the United States, consisting of the Board of Governors in Washington, D.C., and 12 regional Federal Reserve Banks distributed across the country. Its core functions include formulating monetary policy, regulating financial institutions, maintaining financial stability, and providing payment system services. Currently, market focus has shifted to whether it will initiate a new round of interest rate cuts in September.
Today’s Data: The Last Piece of the Policy Puzzle?
The key economic indicators released today (August 14) have become the core barometer for the interest rate cut path:
- Producer Price Index (PPI): July month-on-month expected value 0.2%, core PPI is also expected to grow by 0.2%
- Unemployment claims data: Initial jobless claims for the week are expected to be 225,000, slightly lower than the previous value of 226,000; continuing jobless claims are expected to drop to 1.96 million.
These data closely follow the release of July CPI (year-on-year 2.7%) and core CPI (year-on-year 3.1%). Although inflation is still above the Fed’s 2% target, structural signs of weakness have already emerged.
The Probability of Rate Cuts in September Increases: The Consensus Game Between Wall Street and the White House
Several top institutions have recently adjusted their expectations, and a rate cut in September has become the mainstream judgment:
- Nomura Securities: Clearly predicts a 25 basis point rate cut in September, followed by two more cuts of 25 basis points each in December and March next year, totaling a 75 basis point cut.
- TD Securities: More aggressive expectations for three rate cuts within the year, with three more next year, eventually bringing the rate down to 3%.
- CITIC Securities: Also assesses "three consecutive rate cuts within the year, each by 25 basis points."
U.S. Treasury Secretary Scott Bessent’s call is particularly radical; he publicly advocates for a direct 50 basis point rate cut in September and states that the entire rate cut cycle needs to be 150-175 basis points. This position far exceeds the moderate statements of most Fed officials.
Reasons for Interest Rate Cuts: The Triple Drivers of Employment, Debt, and Political Pressure
The labor market has significantly cooled: non-farm employment in July increased by only 73,000, far below the expected 110,000. More critically, the data for May and June was significantly revised down by nearly 260,000, with a downward revision of up to 90%. The unemployment rate rose to 4.2%, reaching a new high in recent years.
The pressure of government debt has surged: In the fiscal year 2025, interest payments on U.S. debt account for 30% of fiscal revenue. Lowering interest rates can ease the financing costs for the Treasury and mitigate the risk of "technical default."
Political pressure becomes public: Trump continues to criticize Fed policies, even threatening to sue Chairman Powell; Treasury Secretary Basant breaks with tradition to openly call for interest rate cuts, indicating that the game between the White House and the Fed has intensified.
Challenges to the Independence of the Fed: The Complex Background of Policy Shifts
Despite increasing political pressure, Fed officials are still trying to defend their decision-making independence. Chicago Fed President Austan Goolsbee recently emphasized, "Partisan political interests do not always align with the best economic interests… The Federal Reserve Act gives the Fed a dual mandate, not to please the president."
At the same time, tariff policies have become a new variable. Goolsbee pointed out that tariffs simultaneously raise inflation and suppress the economy, putting the Fed in a policy dilemma. Powell previously stated that the impact of tariffs on inflation "has not yet fully manifested," implying a wait-and-see attitude.
Personnel changes also add uncertainty. Current Chairman Powell’s term will end in May 2026, and the Trump administration has listed 10 to 11 potential successors. Treasury Secretary Basant proposed the concept of a "shadow Fed chairman" to involve successors in policy discussions early, thereby weakening Powell’s influence.
Impact on the Cryptocurrency Market: The Liquidity Inflection Point is Approaching
If the Fed starts cutting interest rates, it may trigger a triple effect:
- Increased dollar liquidity: Lower interest rates reduce the attractiveness of dollar assets, leading funds to shift towards alternative investments
- Rise in risk appetite: Crypto assets, as high-volatility targets, usually benefit from easing cycles
- Adjustment of safe-haven demand: Gold and Bitcoin may simultaneously attract capital inflows
Conclusion: Layout Window on the Eve of Policy Shift
Comprehensive economic data, political games, and debt pressures make it highly probable that the Fed will cut interest rates at the FOMC meeting on September 16-17. Although a 25 basis point cut is the mainstream expectation, if today’s PPI and employment data are weaker than expected, a more aggressive 50 basis point cut cannot be ruled out. For investors in the cryptocurrency space, the turning point of interest rates is usually associated with increased market volatility, so it is advisable to closely monitor the forward signals from the Fed’s Jackson Hole annual meeting at the end of August—TD Securities expects that Powell will "lay out the path for easing" there.
