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at a critical moment, the federal reserve suddenly announced major changes.

on the eve of the federal reserve's interest rate meeting, the market's expectations for a "50 basis point rate cut" have rekindled. the latest data from fedwatch shows that swap market traders expect the probability of the federal reserve choosing a large rate cut next week to suddenly rise to 50%, while on september 12, eastern time, the probability was only 15%.

stimulated by the expectation of a sharp interest rate cut by the federal reserve, global markets have begun to stir. among them, the us stock market has rebounded strongly, with the s&p 500 and nasdaq recording their largest weekly gains so far this year, up 4% and 6% respectively; gold prices have soared, with spot gold hitting record highs.

it is worth noting that the voices calling for the fed to cut interest rates by 50 basis points are becoming more and more intensive. former new york fed president dudley said that at the fed's interest rate meeting next week, there is still a possibility of a 50 basis point rate cut, and the reasons for a 50 basis point rate cut are very sufficient. nick timiraos, a reporter for the wall street journal who is known as the "federal reserve's mouthpiece," also said that a 25 basis point rate cut is the "path of least resistance," but starting with a 50 basis point rate cut can reduce market debate on the extent of subsequent rate cuts. analysts believe that the impact of nick timiraos's rekindling of the market's support for the fed's 50 basis point rate cut in september cannot be ignored.

major variables

with only three days left before the federal reserve announces its interest rate decision on september 18 local time in the united states, the market suddenly increased its bets on a "50 basis point rate cut."

the latest data from fedwatch shows that swap market traders expect the probability that the federal reserve will choose to cut interest rates sharply next week to suddenly rise to 50%, while on september 12, eastern time, the probability was only 15%.

looking back at previous interest rate cut cycles, the fed generally lowered interest rates by 25 basis points each time, but if fed officials believe that the u.s. economy faces the risk of slowing down too quickly, a 50 basis point rate cut may be used as a preventive measure.

tim duy, chief u.s. economist at sgh macro advisors, said the path least regrettable for the fed is to cut interest rates by 50 basis points first, which is the only logical policy option.

stimulated by expectations of a sharp interest rate cut by the federal reserve, global markets have begun to become restless.

among them, the u.s. stock market fought back strongly, with the s&p 500 and nasdaq composite index recording their largest weekly gains so far this year, up 4% and 6% respectively.

gold prices also continued to soar. on the morning of september 14, beijing time, the main december contract of gold futures on the new york mercantile exchange (comex) broke through the $2,600/ounce mark, setting a new high since its listing. on september 13, the london spot gold price broke through the $2,560/ounce mark again after breaking through the new high of $2,550/ounce overnight, and once rose to $2,568.18/ounce.

analysts pointed out that the fed's interest rate cut cycle has begun, and the real interest rate of us treasury bonds and the low running of the us dollar are the core factors that promote this round of gold price increases. after the ecb's decision, the euro/dollar strengthened, which hit the us dollar index. in addition, data showed that the us economy was slowing down, which strengthened expectations for the fed's interest rate cut, and gold prices soared.

"this is another twist in the fed rate cut debate, with the probability of a 50 basis point rate cut suddenly surging and markets re-pricing it," said ig analyst tony sycamore.

jun rong yeap, market strategist at ig asia pte ltd, said the ppi data "leaves some room for the fed to consider more aggressive rate cuts in the future". "gold prices have hit another record high, consolidating the overall upward trend of precious metals." he predicted that gold prices could rise to $2,670 an ounce after breaking out of its range.

market debate

currently, the market debate on whether the federal reserve should cut interest rates by 25 basis points or 50 basis points is becoming increasingly heated.

on september 13, local time, former new york fed president william dudley made his latest statement that there is still a possibility of a 50 basis point rate cut at the fed's interest rate meeting next week. he believes that there are sufficient reasons for a 50 basis point rate cut.

“i think the case for a 50 basis point cut is strong. i know what i’m fighting for,” he said at the bretton woods committee’s annual future of finance forum in singapore.

dudley served as the chairman of the new york fed for nine years. as the chairman of the new york fed also serves as the vice chairman of the federal open market committee (fomc), he has a fixed vote on monetary policy. while working with three successive chairmen, ben bernanke, yellen and powell, dudley has always been a hawk who favors a tight monetary policy.

in his latest speech, he called on the federal reserve to cut interest rates by 50 basis points next week, citing the slowdown in the u.s. labor market. he pointed out that the risks facing u.s. employment outweigh the ongoing challenges facing inflation. he also highlighted fed chairman powell's speech at jackson hole last month, in which powell stressed that he did not want to see further weakness in the job market.

in addition, nick timiraos, a reporter for the wall street journal known as the "federal reserve's mouthpiece," also leaked that a 25 basis point rate cut is the "path of least resistance," but he also pointed out that starting with a 50 basis point rate cut could reduce market debate over the extent of subsequent rate cuts.

analysts believe that the impact of nick timiraos's reignition of the market on the federal reserve's 50 basis point rate cut in september cannot be ignored.

"i would also prefer to start with a 50 basis point rate cut, and the fed could respond to investor concerns about a larger rate cut by providing a lot of language to make it less scary," said faust, a fellow at the johns hopkins university center for financial economics.

in his latest report, michael feroli, chief u.s. economist at jpmorgan chase, reiterated his expectation that the federal reserve will cut interest rates by 50 basis points in september.

feroli said that although the fed may only cut interest rates by 25 basis points, it still maintains its original expectations and a 50 basis point cut is what they should do.

however, some wall street institutions still retain the expectation of a "25 basis point rate cut". among them, goldman sachs strategist paolo schiavone believes that a 25 basis point rate cut by the federal reserve next week is still a high probability event; bank of america analysts aditya bhave and shruti mishra said that the possibility of a 50 basis point rate cut is still small.

schiavone pointed out that although the upcoming fomc decision may trigger market volatility, the fed is more likely to choose a relatively mild rate cut of 25 basis points, a judgment based on experience and market logic.

he further explained that "if the interest rate is cut by 50 basis points, it means that the fed may be more inclined to a substantial loose monetary policy, which usually means that the fed is more worried about the economic slowdown and believes that a larger interest rate cut is needed to stimulate economic growth."

some federal reserve officials have also expressed similar concerns, believing that if the interest rate is cut by 50 basis points at the beginning, it will easily cause market panic and will not be conducive to the federal reserve's management of market expectations and control of inflation.