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On August 23rd, Eastern Time, Federal Reserve Chairman Powell sent the clearest signal to the market to date when attending the annual Jackson Hole Global Central Bank Conference: the Federal Reserve is about to start a cycle of interest rate cuts.

How will the Fed control the pace of interest rate cuts in the future? How will the Fed's interest rate cuts affect the global market? How should investors adjust their global asset allocation? The following are the latest judgments of foreign institutions.

The Federal Reserve is almost certain to cut interest rates in September

Kristina Hooper, chief global market strategist at Invesco, believes that the Fed will almost certainly cut interest rates in September, and will most likely cut interest rates again in November and December. She said: "I believe that the Fed will be cautious in its initial rate cuts. I don't think the Fed will announce a rate cut of more than 25 basis points at its September meeting. If the rate cut in September exceeds 25 basis points, it will cause market panic because it means that the Fed is more worried about the health of the economy than before."

In his speech, Powell said: "The time for policy adjustment has come, the direction is clear, and the timing and pace of rate cuts will depend on incoming data, changing prospects and the balance of risks." Kathy Jones, chief fixed income strategist at Charles Schwab, said in the latest episode of "Charles Schwab Investment Podcast" that apart from this important sentence, the speech was somewhat bland.

Powell did not use the word "gradual" when referring to the pace of rate cuts, which led many analysts to believe that the Fed's September meeting may result in a sharp 50 basis point rate cut. Kathy Jones disagreed and said that Fed officials have never hinted at a 50 basis point rate cut.

Schwab said that based on Powell's remarks, he obviously believes that the Fed can continue to reduce inflation without causing significant damage to the labor market. This also means that the Fed is not worried about a "hard landing."

Charles Schwab believes that from now until the Fed's September interest rate meeting, the data worth paying attention to include August inflation data and non-farm payrolls data, as well as the July personal consumption expenditures (PCE) price index released on August 30. Any of these data, especially the employment data, may affect the Fed's decision.

According to a research report released by HSBC Jinxin, based on the six interest rate cuts in the past 40 years, this round of interest rate cuts may last until the end of 2026, and the US federal funds rate may eventually fall to 1%-1.25%. Of course, judging from the current situation, whether the US economy can successfully achieve a soft landing, whether the new president's economic policies will push up inflation again, etc., may all affect the final rate cut process.

Can the US economy achieve a soft landing?

Kristina Hooper said: "Our base case is that it is not too late for the Fed to start cutting interest rates now. If the Fed starts to ease monetary policy in September, the United States will be able to avoid a recession. The U.S. economy may resume accelerated growth in late 2024 or early 2025."

Wang Xinjie, chief investment strategist at Standard Chartered China Wealth Management, pointed out that global stock markets have recovered almost all of their losses since mid-July as the market expects the Federal Reserve to cut interest rates starting in September, thereby achieving a soft landing for the economy.

Morgan Stanley's head of credit research, Andrew Sheets, said Morgan Stanley does not believe that economic growth will slow significantly, so it will not ultimately harm the credit market. But the upcoming data is very important. Andrew Sheets said: "Recent signs show that market confidence can be shaken quickly. In fact, despite the recent market crash and then a rapid rebound, the performance of cyclical stocks that are more sensitive to the economy has seriously lagged behind defensive stocks - indicating that investors still have doubts about whether economic growth is healthy. It would be great if the economy could recover quickly, but we are not out of the woods, and investors should continue to pay attention to whether future economic data can confirm that the economy has really recovered."

What is the impact on the global market?

Kristina Hooper believes that the dollar will weaken further, which should be a positive for foreign stocks. She is particularly optimistic about British stocks, Canadian stocks and emerging market stocks. (European stock market volatility may create buying opportunities.) The relevant stocks all have attractive valuations, greater cyclical exposure and the catalyst of upcoming rate cuts.

Wang Xinjie said that the expectation of rate cuts has led to lower US bond yields and the US dollar. Any policy measures aimed at easing the financial environment and guiding the US economy to a soft landing will support the performance of risky assets and will support the performance of high-yield bonds, which are an important part of income-based investment portfolios.

Nevertheless, Wang Xinjie believes that because the yield premium is very narrow, the investment return of high-yield bonds may come from the yield itself rather than the capital gains brought by the price increase. As the Federal Reserve cuts interest rates, the carry trade carried out by borrowing yen is fading, so Wang Xinjie said: "We have turned tactically bearish on the Australian dollar against the yen, and carry trades are often carried out with this pair of currencies. Chinese companies' second-quarter earnings exceeded expectations, so the market raised its earnings forecast. Standard Chartered Bank continues to be optimistic about those high-quality non-financial state-owned enterprise stocks with a stable and good dividend record."

Given the likelihood of accelerated monetary easing around the world, Kristina Hooper believes it would make sense to lock in higher bond yields and increase exposure to investment-grade credit and municipal bonds.

HSBC Jinxin Fund said that overall, in the past 5-9 interest rate cut cycles, Asian dollar bonds, gold, and equity assets have achieved relatively high positive returns and relatively good average returns. On the contrary, crude oil, commodities, and the US dollar have performed relatively weakly. However, it should be noted that the price trends of various assets, in addition to the factors of US interest rate cuts, are often affected by multiple factors such as global economic changes, changes in supply and demand patterns, climate change, and geopolitics, and investors need to make a comprehensive analysis based on various factors.

Morgan Stanley issued a report stating that investors should pay attention to the growing dominance of US fiscal policy over the market in the second half of 2024 and beyond, and consider opportunities in emerging market debt, US stocks, loans and real estate.