Although the inflation rate is still above the Fed's official target of 2%, the market generally expects the Fed to soon take measures to cut interest rates. This unexpected policy direction has sparked a discussion about the rationality of the inflation target.

The latest economic data shows that the core consumer price index in August may rise to 3.1%, compared to a year-on-year increase of 2.9% in July. It is rare to relax monetary policy in such an inflationary environment.

Looking back at history, the Fed lowered interest rates at the end of last year when the core CPI was higher, but this move sparked considerable controversy. The unemployment rate did not rise as expected, and long-term Treasury yields actually increased. To find a similar precedent, one must trace back to the early 1990s, when the Fed had not yet officially adopted a 2% inflation target.

The current economic environment is vastly different from that of the early 1990s. Today, the internet has permeated everyday life, smartphones are widespread, and various applications have changed the way people live. Against this backdrop, the Fed may loosen policies for the second time within a year when the core inflation rate reaches 3%, which is undoubtedly a significant event and may indicate that economic theories from the past few decades are facing reevaluation.

However, there are still hawkish voices within the Fed expressing concerns about the inflation outlook. Coupled with the fact that the U.S. federal government debt and deficit are at historical highs during peacetime, long-term Treasury yields may continue to rise. Interestingly, the financial markets do not seem overly concerned about this.

This seemingly contradictory phenomenon raises a series of questions: Is the Fed re-evaluating its inflation targets? Does the current economic environment require a new policy framework? Does the calmness of the financial markets herald impending changes?

Regardless, the Fed's policy direction will have a profound impact on the global economy. We need to closely monitor the upcoming policy decisions and their effects on inflation, employment, and economic growth. This grand experiment in economic policy may provide valuable insights for future monetary policy formulation.