Against the backdrop of the European Central Bank's recent interest rate cut of 25 basis points, the Federal Reserve's interest rate meeting scheduled for this Thursday, September, is fast approaching, making the direction of monetary policy a focal point of global market attention.
Currently, the market widely anticipates that the Fed will initiate a rate-cutting cycle in September, leading to a reversal in the hot and cold circulation of the US dollar.
The key question is, will the initial rate cut be 25 basis points or 50 basis points?
The CME's "FedWatch Tool" currently shows that the market's expectation for a 50 basis point rate cut has risen to 62%.
Market analysis suggests that investors believe the weak US job market data has sparked debates over whether the Fed has missed the timing for a rate cut.
The Fed should directly implement a 50 basis point rate cut because the cut has come late, so it needs to catch up.
Nick Timiraos, a journalist known as the "Fed's mouthpiece," also stated that a 25 basis point rate cut is the "path of least resistance," but starting with a 50 basis point rate cut could reduce market debates over the extent of subsequent rate cuts.
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Former New York Fed Chairman Dudley indicated that the logic for a 50 basis point rate cut is more convincing.
Even three Democratic senators, including Warren, wrote to Powell, urging him to significantly lower the benchmark interest rate, including a 75 basis point rate cut this week, to protect the US economy from potential harm.
However, strategists from Goldman Sachs and Bank of America believe that a 25 basis point rate cut by the Fed next week is still a high probability event.
This implies that the Fed is more concerned about economic slowdown and needs a substantial rate cut to stimulate economic growth.
The US Department of Labor's CPI data for August, released last week, showed a 2.5% year-on-year increase, seemingly indicating that US inflation continues to slow down but remains higher than the Fed's 2% long-term inflation target.
Moreover, the core CPI in the US increased more than expected year-on-year in August; the month-on-month increase was also larger, clearly indicating that US inflation has stickiness, and the market must consider the possibility of a second round of inflation in the US.
Some Fed officials have expressed similar concerns as Goldman Sachs and Bank of America, believing that a 50 basis point rate cut could easily trigger market panic and is also not conducive to the Fed's market expectation management and inflation control.
As a large number of investors begin to consider the possibility of a substantial rate cut by the Fed, the global market is making adjustments.
On Monday, Eastern Time, the Dow Jones Industrial Average rose by 0.55% to 41,622.08 points, setting a new historical high.
The Nasdaq fell by 0.52% to 17,592.13 points; the S&P 500 rose by 0.13% to 5,633.09 points.
Investors believe that a substantial rate cut by the Fed will further stimulate US consumption, especially benefiting the real estate and automotive markets.
But will the future be as wonderful as investors expect?
As an inflation indicator and a safe-haven asset, driven by the Fed's rate cut expectations, Comex gold futures prices once climbed to $2,617.40, setting a new intraday historical high for the third consecutive trading day, and then fluctuated around $2,611.
Bank of America strategists stated that gold is the "best hedge against inflation re-acceleration in 2025," and they predict that gold prices could rise to $3,000 per ounce.
Will gold prices continue to rise?
On this side of the Pacific, as the US dollar's rate cut approaches, the Japanese yen continues to appreciate, once breaking through the 140 yen per US dollar threshold, reaching its lowest level in nearly nine months.
Investors believe that since the Fed will cut rates this week, the interest rate differential between the US dollar and the yen will narrow further, and the yen will continue to appreciate.
BNP Paribas foreign exchange strategists stated that the yen's market performance is due to interest rates, and the market is digesting the prospect of the Fed's rate cut and the possibility of the Bank of Japan continuing to raise rates.
The appreciation of the yen will bring "quite a few risks."
Foreign financial institutions will also be forced to sell part of their investment portfolios to cope with the unwinding of yen carry trades, but there has been no complete collapse of carry trades so far.
On September 17th, the Nikkei 225 index fell by 2% at one point and closed down by 1%.
Will the Fed's rate cut and the appreciation of the yen make the Japanese stock market precarious?
Will the collapse of yen carry trades lead to another Black Tuesday?
For China, the Fed's rate cut means a reduction in the pressure of the interest rate differential between China and the US and a decrease in capital outflow pressure, which will also ease the depreciation pressure on the renminbi, making it stronger.
Currently, Chinese exporters hold a large amount of US dollars that have not been exchanged, and after the Fed's rate cut, they are likely to choose to exchange them.
The chief economist of Si Rui stated that at least $400 to $500 billion will flow back into the Chinese market, driving the appreciation of the renminbi.
The appreciation of the renminbi is favorable for imports and may also put pressure on the export of Chinese products.
The Fed's rate cut also opens up space for the People's Bank of China to adopt a more proactive monetary policy.
In August, the one-year LPR was 3.35%, and the LPR for more than five years was 3.85%, both remaining unchanged after being lowered in July.
On September 20th, the central bank will announce the latest LPR.
Will the LPR be lowered?
Will the existing mortgage loans be reduced?
Will the Chinese stock market receive liquidity support?
The Shanghai Composite Index is approaching 2,700 points, can the Fed's rate cut drive a counterattack in the large A market?
Can the Fed's rate cut and the opening of the dollar hot circulation save the global economy?