Former "Hawk King" of the Federal Reserve: The Fed is just one step away from a soft landing!

After the Federal Reserve continued to keep interest rates unchanged, some people in the market are worried that the recent decision of the Federal Reserve not to cut interest rates may be a "mistake". Known as the "new bond king", Gundlach expressed that the Federal Reserve should cut interest rates immediately, as the trend of US employment has been moving towards a worse state, and the US economy is not as strong as commonly imagined. When the Federal Reserve truly starts to cut interest rates, it will be too late. However, former St. Louis Fed President Bullard seems to be more optimistic about the prospects of the Federal Reserve, believing that officials have done well in coordinating a soft landing. He mentioned that the only thing the Federal Reserve has yet to accomplish is to normalize the yield curve that has been inverted for over two years. Bullard stated, "The final step of a soft landing is to bring down the short end of the curve and eliminate the inversion. Doing this in an organized way without signaling that you are worried about the economy is the real trick." Despite former Fed Vice Chair Dudley and Brainard urging the Federal Reserve to take action immediately, the Federal Reserve still maintains stable interest rates. Powell admitted that there is no need to focus 100% on inflation now, and easing can be considered, with a potential rate cut as early as September. Bullard said, "If you say you will wait until the next meeting because you want to see some data between now and the next meeting, that will make the market wonder what is hindering the rate cut between now and the next meeting. If you react to this data, it depends a bit on the data." Therefore, many analysts have been advocating for a rate cut as soon as possible, as there are signs indicating a steady softening in the labor market. The US second-quarter employment cost index confirmed this view, coming in lower than expected, highlighting the fading of many labor-driven inflations. Emily Roland from John Hancock Investment Management agrees, stating that the current economy looks decent, but she warns that there will be more softness in the future. She said, "The best time to fix the roof is when the sun is shining, and these cracks in the labor market are still forming." Roland mentioned, "There is a lot of excitement around the potential rate cut by the Federal Reserve now, as the rate cut is due to declining inflation, and more importantly, slowing economic growth." She indicated that this suggests that the ongoing rotation towards small-cap stocks will be particularly tough. On the other hand, Julian Emanuel from Evercore ISI stated that the economic slowdown will not be as painful as many people say. He mentioned, " US companies have been preparing for an economic slowdown for two years." Bullard agrees with the more optimistic view on economic growth, emphasizing that the key is short-term rates still being higher than long-term rates, historically signaling an economic recession, and under similar conditions, this will have a restraining effect on long-term loans. He said, "This looks very good. If they can piece together the final piece of the puzzle, I think the Federal Reserve will be in a very good position."