Changes in macroeconomic fundamentals determine the direction of financial market movements. Powell admitted that the US economy currently faces two major issues: downside risks in the labor market and the risk of inflation rebounding. The problem with the labor market lies in the weakness of both supply and demand sides. Declining labor force participation rates and anti-immigration policies have led to insufficient labor supply, while weak hiring demand from businesses (including newly established ones) has resulted in a balance between labor market supply and demand at a low level. However, downside risks are increasing.

The impact of new tariff policies on goods consumption is beginning to show and is expected to persist for a considerable time. The Fed tends to believe that tariffs have a limited impact on inflation, likely a one-time effect. However, judging from August's CPI data, upward pressure on goods prices and service sector inflation remains significant. Undoubtedly, labor market conditions and price levels affect economic growth. Currently, consumption by wealthy Americans and corporate investments in artificial intelligence are supporting economic growth. But can this situation be sustained? For most consumers, interest rate cuts have a limited impact on their financial burdens, as the federal funds rate only influences short-term rates, while consumer borrowing rates are primarily linked to medium- and long-term rates. The financial burden on the majority of consumers remains heavy, and they are struggling under inflation.

Currently, financial market expectations have fully confirmed that the Fed will cut rates twice more within the year, which is also the main driver behind the US stock market repeatedly hitting record highs. Routine interest rate adjustments within the year will have limited impact on recent US stock market performance, as investors' focus will shift to the labor market, inflation, budget battles, and economic growth. If medium- and long-term US Treasury yields continue to rise and congressional budget disputes intensify, the stock market will inevitably face a double blow. In the near term, market sentiment will be influenced by the core PCE data released on September 26, the non-farm payroll report on October 3, the CPI report on October 15, and the US third-quarter GDP growth data on October 30. Overall, these data are expected to be weak, and financial markets may enter a phase of downward adjustment from high levels.