High inflation and weak employment cannot stop the pace of interest rate cuts. The Federal Reserve may implement a "defensive" rate cut of 25 basis points this week

According to the Zhitong Finance APP, despite the high inflation data released last week, the bad news from the job market is even more alarming, resulting in the market's firm belief that the Federal Reserve will cut interest rates this week, and this expectation has not changed at all. According to data released by the U.S. government last Thursday, the Consumer Price Index (CPI) rose by 0.4% month-on-month in August, significantly larger than the 0.2% increase in July; at the same time, the number of initial jobless claims rose to 263,000, reaching a nearly four-year high, higher than the revised 236,000 from the previous week. These two sets of data reflect the complex situation of a slowing job market and persistent price increases, making it difficult for the Federal Reserve to balance its dual mandate of "full employment" and "price stability."

Former Federal Reserve economist and Chief Economist at New Century Advisors, Claudia Sam, pointed out: "The current economic situation is the 'worst-case scenario' for the Federal Reserve. The Fed is not celebrating a rate cut due to 'good inflation news,' but is being forced into a defensive rate cut due to 'bad employment news.'" She expects the two-day Federal Reserve meeting this week to cut rates by 25 basis points, but emphasizes that "inflation remains too stubborn."

Colin Martin, fixed income strategist at Charles Schwab, also agreed: "The inflation rate remains high and is moving in the wrong direction."

RSM Chief Economist Joe Brusuelas warned that although trading data shows a 100% pricing for a rate cut in September, almost a done deal, the true "background" of the data (sticky inflation + only "preliminary" weakness rather than a collapse in employment) does not support such an aggressive script of "three more rate cuts this year."

Data from the Chicago Mercantile Exchange's FedWatch shows that as of last Friday, due to deepening cracks in the labor market, investors' expectations for three rate cuts this year reached a probability of 76%. Previously, the employment revision data released last Tuesday further intensified market concerns—between April 2024 and March 2025 (inclusive), U.S. employment numbers were revised down by 910,000 from the initial report. The jobless claims data released last Thursday then became the latest evidence highlighting the economic slowdown.

However, Rachman Achuthan, co-founder of the Economic Cycle Research Institute, believes that the current economic slowdown has not yet evolved into a "hard landing": "We will not experience a collapse in the job market; the situation may become difficult at some point, but we are not there yet."

Despite concerns about the economy and the job market, Wall Street remains optimistic about the outlook for tech stocks and the stock market. Oracle's strong performance in AI orders last week highlighted the resilience of the tech sector.

Ulrich Hofmann-Bulshadi, Global Head of Equities at UBS Global Wealth Management, stated: "Tech stocks are showing strong earnings momentum, and with the Fed about to cut rates, high valuations are not a reason to avoid diversified investments."

She further predicts that there is still upside potential for the U.S. stock market, with a target price of 6,600 points for the S&P 500 by the end of 2025, reaching 6,800 points by the end of June 2026.

Driven by this expectation, the Nasdaq index broke through 22,000 points for the first time last week, likely achieving a fifth consecutive week of new highs; the S&P 500 and the Dow Jones Industrial Average also reached new highs, with the latter breaking through 46,000 points for the first time, demonstrating the market's dual confidence in tech-driven growth and policy easing