The market strongly expects that the Fed will start cutting interest rates in September, with a probability as high as 90.7%. I see that this probability is based on the consensus regarding the economic slowdown, such as the cooling labor market and improving inflation. However, we should also be aware that the market appears to be overly aggressive regarding the subsequent policy path. For example, the probability of maintaining interest rates in October is only 4.5%, almost certain that rate cuts will unfold consecutively. I believe this high level of certainty carries risks. The Fed's decisions will strictly depend on the evolution of subsequent inflation, especially the stickiness of core services and employment data; any fluctuations in the data could disrupt the expected rhythm.

Regarding the market expectations for the cumulative interest rate cuts within the year, I think there are differing views. First, the probability of a 25 basis points cut is 48.9%, while the probability of a 50 basis points cut is as high as 46.5%, with both almost evenly matched. This reflects the core uncertainty of the macroeconomic outlook. My core view is that a 25 basis points cut in September is the most likely starting point. Whether it will be followed by another 25 basis points or reach 50 basis points more quickly will depend on the height of the market. Reasons supporting a larger cut of 50 basis points may include increased economic downturn risks or a confirmed inflation trend. On the other hand, a preference for a moderate cut of 25 basis points may stem from inflation not meeting targets or the economy showing resilience. The market currently implies expectations of a soft landing + 50 basis points, but if inflation proves sticky or economic resilience exceeds expectations, the risk of only one 25 basis points cut for the entire year or delaying subsequent actions cannot be ignored.
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