SMB: The Federal Reserve has been "slapped in the face" by reality, and the easing cycle is about to begin.

E.Sun Bank stated that the August non-farm payroll report in the United States further confirms the weakening trend in the labor market, with employment, work hours, and income growth falling back to levels seen during the pandemic. Regardless of inflation, the Federal Reserve is almost certain to cut interest rates at the September meeting. A 25 basis point rate cut is almost certain, but if August inflation is weaker than expected, a 50 basis point cut is more likely. The Fed's previous inflation forecast has been contradicted by reality, and its 2026 unemployment rate forecast faces risks of not being met. They were overly pessimistic about inflation before, and overly optimistic about the labor market. It is expected that the Federal Reserve will initiate a period of sustained easing, with the goal of lowering interest rates to what it deems as a "neutral level" by March 2026, reaching around 3%. The new Federal Reserve chairman is likely to further increase stimulus measures and lower rates to near 2%. However, the risk is that if inflation picks up again, at least some of the stimulus measures will be withdrawn by 2027.