The recent decisions of the Federal Reserve have fallen into a dilemma. In the July interest rate decision, although the rate was kept unchanged at 4.25%-4.50%, internal divisions have become increasingly evident. Two key members publicly stated for the first time that, given the potential risk of an economic recession, consideration should be given to an early rate cut. However, Fed Chairman Powell has taken a cautious stance on whether to cut rates in September, emphasizing the need to rely on more economic data to make a decision.

This statement caused the market's expectation for a rate cut in September to drop sharply from 65% to 45%. Investors now generally believe that the rate cut may be delayed until November or even December. One reason for this situation is that the core PCE remains higher than expected, staying at 2.5%. Additionally, the impact of tariff policies has led to a 30%-40% increase in the prices of many goods, making it difficult for the Federal Reserve to choose between cutting rates and controlling inflation.

Current economic indicators present a contradictory situation: on one hand, the GDP grew by 3% in the second quarter, and technology stocks continue to rise; on the other hand, demand in the real estate market has dropped by 3.8%. Although the unemployment rate remains at a relatively low level of 4.1%, the labor market may be quietly weakening.

Powell emphasized that the Federal Reserve's primary responsibility is to maintain full employment and price stability, and it will not take the government's fiscal costs into consideration. This position further reduces the likelihood of a rate cut in September.

Next, the economic data for August will be crucial. If the core Intrerest Rate falls below 2.3% and the number of new jobs is less than 70,000, the probability of a rate cut in September may rise to 70%. However, if the Intrerest Rate rises above 2.8% due to tariff effects or GDP growth falls below 2%, there may be no rate cuts this year.

For investors, it is currently advisable to avoid high-valuation technology stocks and other interest rate-sensitive assets, maintain a high cash holding ratio, and wait for the August data to be released. If the Federal Reserve subsequently signals a preventive interest rate cut, it may be worth considering buying U.S. Treasury bonds.

Overall, the Federal Reserve is seeking a balance between economic data and policy pressures. The future direction of policy will heavily depend on the economic data to be released in August, which will be a key factor in determining the Fed's next actions.