On Thursday (June 12th), as the latest economic data of the United States was released, interest rate futures linked to the Federal Reserve’s policy rate reflected a growing market bet on the Fed cutting interest rates twice in a row starting from September.
Initial Jobless Claims and Labor Market Cooling
Data released by the US Department of Labor on the same day showed that the number of initial jobless claims as of last week remained at a relatively high level, indicating that the labor market is gradually cooling down and further strengthening investors’ expectations for easing policies.
Producer Price Index (PPI) in Line with Expectations
Meanwhile, another government report shows that the producer price index (PPI) in the United States rose by 2.6% year-on-year in May, in line with economists’ expectations, indicating that inflationary pressure has not intensified further.
US PPI Increase Falls Short of Expectations
Due to the decline in service costs such as air ticket prices, the increase in the US producer price index (PPI) in May was lower than market expectations, further easing inflation concerns and providing room for the Federal Reserve to resume interest rate cuts within the year.
According to data released by the Bureau of Statistics of the US Department of Labor on Thursday, the PPI rose by 0.1% month-on-month in May, reversing the revised 0.2% decline in April. Previously, the market generally expected a 0.2% month-on-month increase in the PPI in May, while the preliminary data for April showed a 0.5% decline.
In the 12 months ending in May, the PPI rose by 2.6% year-on-year, slightly higher than 2.5% in April, indicating that inflationary pressure remained moderate overall.
Consumer Prices Rise Moderately, Focus on Tariff Effects in the Second Half of the Year
Data released just the day before showed that the US consumer price index (CPI) rose only slightly month-on-month in May, mainly benefiting from the decline in gasoline and air ticket prices. This trend echoes the decline in the cost of service items in the PPI report, reflecting a cooling of overall demand.
However, economists have warned that as the price transmission effect of the Trump administration’s new round of tariff policies gradually emerges, inflation may heat up again in the second half of the year.
Federal Reserve May Launch “Double Cut” in September
Against the backdrop of generally moderate inflation data, the market widely expects that the Federal Reserve will keep the federal funds rate unchanged within the range of 4.25% to 4.50% at the FOMC meeting next Wednesday.
However, judging from the implied pricing in the interest rate futures market, the probability that the Federal Reserve will resume cutting interest rates in September is steadily rising. Investors are betting that once inflation stabilizes, the Federal Reserve may resume the easing cycle to deal with potential economic weakness.
Before the release of these two sets of data, the interest rate futures market originally predicted that the Federal Reserve would cut interest rates for the first time in September and again in December. But after the data was released, traders began to bet on a possibility of “back-to-back” consecutive interest rate cuts in September and November, reflecting the accumulation of concerns over an economic slowdown.
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