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

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."

according to the securities times, the latest data from fedwatch shows thatswap 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 thatthe 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.

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.

according to xinhua finance, fxtm chief chinese market analyst yang aozheng told reporters that the federal reserve is expected to make a moderate interest rate cut of 25 basis points in september. yang aozheng said that the economic fundamentals do not support the market's recession expectations for the time being. at the same time, the rise in unemployment has only lasted for a few months, and the trend is not very obvious.

therefore, at a stage when the fundamentals of the u.s. economy are still relatively resilient, the first interest rate cut of 25 basis points can give the federal reserve more time to judge and observe the impact of the policy shift on the economy.

zhang yu, deputy director and chief macro analyst of huachuang securities research institute, believes that the current employment and financial situation does not require the fed to start with a 50bp rate cut (similar to 2001 and 2007). a large-scale rate cut may instead exacerbate panic. if there is no recurrence of market volatility in the short term and it does not evolve into a large-scale liquidity shock, there is a high probability that the rate will be cut by 25bp in september.

this also leads to the current mainstream market expectation that the rate cut in september will be 25bp, but the fed's rate cut in november or december may reach 50bp: if the fed only cuts by 25 basis points in september, the market still expects a 52% chance of a 50 basis point or more rate cut in november; if the fed only cuts by 25 basis points in november, then the market expects a one-time cut of 50 basis points or more in december with a probability of up to 80%.

michael feroli, chief u.s. economist at jpmorgan chase, reiterated his expectation of a 50 basis point rate cut by the federal reserve in september in his latest report. he is the only wall street investment bank that predicts that the federal reserve will cut interest rates by 50 basis points. feroli said that although the federal reserve may only cut interest rates by 25 basis points, it still maintains its original expectation that a 50 basis point rate cut is what they should do.

michael yoshikami, ceo of destination wealth management, believes that a 50 basis point rate cut could indicate that the fed is ready to take action to boost the job market, which would be seen as a very positive signal.

according to the daily economic news, economists interviewed by the reporter believe that the actual number of interest rate cuts may be milder than the current market expectations. for example, torsten sløk told the daily economic news reporter that he expects there will be only six interest rate cuts in total in the upcoming round of interest rate cuts.

"in previous typical interest rate cut cycles, the economy experienced a recession due to the covid-19 pandemic, the global financial crisis, or the real estate crisis, but the united states does not have such a negative impact at the moment. the reason for the economic slowdown is the (aggressive) interest rate hikes by the federal reserve in the past few years. only when the u.s. economy begins to slow down significantly will the federal reserve cut interest rates faster," sløk added to reporters.

as for the final interest rate level of this cycle, sløk believes that the fed will use its estimated 3% "long-term neutral interest rate (r-star)" as a guide, and the final interest rate may be around 3%. he personally believes that it will be at 4.5%. in other words, sløk believes that the total interest rate cut by the fed in this round of easing cycle will be 100 basis points, which is much lower than the 250 basis points currently estimated by traders.

daily economic news, compiled from securities times, xinhua finance, daily economic news (reporter: cai ding)

daily economic news