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1. The Fed's rate hike this year is coming to an end, and the rate will be raised no more than once in September.

Federal Reserve Chairman Powell said at the July FOMC meeting that the path of future rate hikes will depend on U.S. economic data, meaning as long as core inflation can continue to fall, the likelihood of the Fed raising rates further is not that high.

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Below are three factors that deserve attention and could affect inflation data (CPI) in the future:

• The impact of the July increase in crude oil prices on CPI: There was a relatively significant increase in crude oil prices in July, which may mean that CPI does not return to 2% as quickly.

• The influence of U.S. residential rental prices: The statistical subitem US CPI includes owner-equivalent rent, while the European CPI algorithm excludes this subitem. This is because these data are survey data on how much homeowners believe their home can be rented, not data on an actual market rent. Assuming this sub-item is excluded, CPI is already below 2% in the United States, at 1.4%.

• The service sector inflation level continues to decline: the annual growth rate of high-frequency rental data continues to decline, and the Fed is not exactly in favor of raising interest rates further.

2.There is a high probability that the Federal Reserve will cut interest rates in the first half of next year, or at the latest in the second half.

Going forward, the Federal Reserve will primarily consider whether there are obvious signs of recession in the United States, and it may be influenced by the following two factors:

• The concentrated maturity of U.S. corporate bonds is around 2025, and many companies issued a large number of long-term corporate bonds during the previous zero interest rate period. 2025 is about the time when a large amount of this debt will mature. At that point, companies will need to continue refinancing on a large scale. If the interest rate is still very high at that time, it will certainly have a relatively large impact on the financial status of the companies that need financing.

• The pressure of interest payments on the U.S. government's own debt is doubling. According to FRED, interest expenditures in the United States are projected to be twice as high in 2023Q2 as they were in the low-interest-rate era 10 years ago. After the debt ceiling is reached, new bond issuance will continue. The U.S. Treasury is expected to issue more than $1 trillion worth of Treasury bonds in 2023Q3, and interest payments will continue to rise.

Therefore, based on the fact that the U.S. economy is still resilient enough, there is no systemic risk, and the unemployment rate has not risen sharply, the Fed may not cut rates this year or start to do so in the first half of next year.

As for the impact on the U.S. equity market $S&P 500(.SPX)$ , given that the current reverse repo business in the U.S. has reached a level of $1.7 trillion, liquidity is still very abundant, so it is actually not very conducive to its sharp decline.

However, if the Fed's interest rate policy turns toward a rate cut next year, the market or the economy may already be showing clear signs of recession. At that point, the U.S. stock market or capital market could experience a relatively sharp decline.