Shopee Mall Expectations of a Fed rate cut rise

Shopee Mall Based on the latest market dynamics and economic data, expectations of a Federal Reserve rate cut are rapidly rising, especially against the backdrop of signs of weakness in the US economy and a deteriorating labor market. The following is a key analysis:

1. The probability of a September rate cut has increased significantly, with a 50 basis point possibility emerging.

Non-farm payroll data collapsed: US non-farm payrolls added only 73,000 jobs in July, far below the expected 104,000, and data for the previous two months were revised downward by a combined 258,000, indicating a sudden slowdown in the job market.

Market pricing is aggressive: Interest rate futures indicate a 75% probability of a 25 basis point rate cut in September. If data deteriorates further, a 50 basis point cut cannot be ruled out.

Internal divisions within the Federal Reserve: Two Federal Reserve Board members (Waller and Bowman) dissented at the July FOMC meeting, advocating for an early rate cut. This marked the first time since 1993 that both board members dissented from pausing rate cuts.

2.Shopee Mall Goldman Sachs predicts three rate cuts in 2025, with the final rate set at 3.0-3.25%.

Continuous rate cut path: Goldman Sachs expects the Fed to cut by 25 basis points each in September, October, and December, followed by two more cuts in the first half of 2026, ultimately lowering the rate to 3.0-3.25%.

Citigroup is more aggressive: it believes rates could fall to 3% or even lower, depending on the extent of economic data deterioration.

Economic slowdown supports easing: US GDP growth in the first half of 2025 will be only 1.2%, below potential, and tariffs may further drag down consumption.

3. Political factors accelerate the Fed's policy shift.

Trump pressure: Trump has recently repeatedly criticized Powell, calling his rate cuts "too little, too late," and even suggesting the Federal Reserve Board should "take control."

Impact of personnel changes: The resignation of Board member Adriana Kugler provides Trump with an opportunity to nominate a new Board member (likely with a dovish bent) before September, further shifting the internal balance within the FOMC. Policy Divergence Risk: If the Federal Reserve significantly cuts interest rates while the ECB maintains them, the US dollar could weaken further, exacerbating volatility in global capital flows.

4. Market Impact

US Stock Market Volatility: If expectations of a rate cut are not met, a market sell-off could occur. If a rate cut exceeds expectations, risk assets may be boosted in the short term, but long-term recession concerns may be reflected.

Falling US Treasury Yields: The market has begun to bet on lower terminal interest rates, and the 10-year Treasury yield could fall further.

Gold Strengthens: Expectations of rate cuts and a weaker US dollar have pushed gold prices above $3,350/oz, increasing safe-haven demand.

5. Risk Points

Inflation Fluctuations: If energy prices (e.g., Middle East conflict) or tariffs drive inflation, the Fed may be forced to postpone rate cuts.

Impact of Data Revisions: The previous non-farm payroll data was significantly revised downward. If future employment data rebounds, the urgency of rate cuts may be weakened.

Excessive Political Interference: If the independence of the Federal Reserve is questioned, market concerns about the creditworthiness of the US dollar may arise.

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Conclusion

The market is currently pricing in a September rate cut from the Federal Reserve, but the specific size (25 or 50 basis points) remains dependent on August's non-farm payroll and inflation data. Goldman Sachs's forecast of consecutive rate cuts reflects the pressure of a slowing economy, but if the Trump administration accelerates personnel changes, the policy path could become more dovish. Investors should be wary of market volatility caused by "expectation gaps."