Inflation Surges as Top Market Risk, Fed Rate Cuts Uncertain

According to the latest September Global Fund Manager Survey released by a major U.S. bank, market concerns have shifted, with a "second wave of inflation" now seen as the biggest tail risk, replacing "trade wars causing global recession." This shift suggests that the Federal Reserve's path to further interest rate cuts may face significant obstacles.

Specifically, 26% of fund managers identified "second wave of inflation" as the primary risk, a slight decrease from the previous month. Additionally, 24% of fund managers viewed the loss of the Federal Reserve's independence and dollar depreciation as the biggest tail risks, while 22% saw disorderly bond yield increases as the primary risk. Only 12% of fund managers considered "trade wars causing global recession" as the biggest risk, a significant drop from 29% in the previous month.

The survey, conducted from September 5 to 11, involved 165 fund managers overseeing a total of 426 billion U.S. dollars in assets. The findings indicate that the U.S. President's tariff policies and challenges to the Federal Reserve's independence are potential drivers of renewed inflation. If the Federal Reserve's rate decisions are influenced by political factors, it may struggle to implement effective tightening measures when inflationary pressures rise, potentially leading to a resurgence in inflation.

Recent economic indicators suggest that inflation is already on the rise in the U.S. This has led some economists to advise the Federal Reserve to proceed cautiously with significant rate cuts. Data released by the U.S. Bureau of Labor Statistics last week showed that overall inflation increased in August compared to the previous month. The Consumer Price Index (CPI) rose 0.4% month-over-month, exceeding market expectations of 0.3%, and the year-over-year increase was 2.9%, matching expectations and accelerating by 0.2 percentage points from July.

On September 16, the Federal Reserve began a two-day meeting to discuss monetary policy. Market expectations are that the Federal Reserve will implement its first rate cut in nine months, with a 25 basis point reduction. Given that the rate cut this week is almost certain, investors are now more focused on the central bank's future policy direction. The upcoming release of the dot plot and the Chairman's post-meeting remarks will provide more insights for investors to assess this.