CPI America rise 2.9% – Fed still cuts interest rates, the market faces a dual scenario

The latest report shows that America's CPI for August reached 2.9%, the highest since January. More notably, Core CPI also rose to 3.1%, indicating that core inflation – which excludes volatile factors like energy and food – is heating up again. Clearly, inflation has not “cooled” but is showing signs of escalating once more. However, despite this data, the market still expects the Fed to cut interest rates in September, October, and December, each time by 25 basis points. This is quite a “paradoxical” step as inflation is still persistent, yet the Fed is easing monetary policy. 🔹 Short-term impact Positive for risk: The rate cut means liquidity returns to the market, providing support for stocks, crypto, and risky assets. Excited sentiment: Cheaper money often makes investors willing to “chase profits,” thereby stimulating short-term upward waves. 🔹 Long-term impact Inflation risk: If inflation continues to rise while the Fed keeps cutting interest rates, the economy could face a dilemma – needing to curb inflation while not being able to tighten too much to avoid recession. Stuck policy: The Fed may find itself in a “dilemma” - cutting interest rates to support growth but inadvertently fueling inflation. High volatility: Long-term markets will struggle to remain stable if confidence in the Fed declines. Investors need to prepare for unexpected shocks. 💡 Conclusion In the short term, the market may enjoy a rebound wave thanks to lower interest rates. However, in the long term, if inflation continues to be high, the Fed will have to pay the price for the decision to “cut rates in inflation.” In this context, the best approach for investors is to take advantage of the short-term upward wave, but maintain strict risk management discipline.