Huaxi: The Federal Reserve may accelerate the pace of interest rate cuts.

25bp75bp"The Federal Fund rate is appropriate," but no comments were made on the extent of the interest rate cut. Federal Reserve Governor Wall stated that he still slightly leans towards a hawkish stance, believing that the data is still relatively solid. He considers a rate cut should be cautious, but he also holds an open attitude towards the possibility of a larger rate cut. Whether the September Federal Reserve meeting (to be released in the early morning of the 19th Beijing time) will cut rates by 50bp is still undecided, with market expectations at only 30% probability. We expect a high probability of a 25bp rate cut in September.Compared to a 25bp or 50bp rate cut, we may need to pay more attention to the dot plot provided by the Fed at the September meeting, which represents the pace of rate cuts the Fed acknowledges going forward. The June dot plot projected a 25bp rate cut within the year, followed by 100bp cuts in the next two years, leaning towards a 25bp cut each quarter. We need to observe the September dot plot to see if the Fed switches from a quarterly 25bp cut to a 25bp cut at each meeting (eight meetings per year). The Fed's longer run interest rate is 2.8%, which can be seen as the endpoint of rate cuts, corresponding to an overall magnitude of around 250bp for this rate cut cycle. If the Fed switches to a 25bp cut at each meeting, it will approach the neutral rate near the end of next year. The pace at which the Fed reaches the endpoint of the rate cut cycle may be more important. Fifth, rate cut pricing is already quite adequate, with the market more concerned about the risk of a slowdown in the US economy. The market expects a total of 9 rate cuts of 225bp by June next year, which is already pricing in a more recessionary outlook. The recent rate cut cycles with such a fast pace were only seen in 2001 and 2007, during the dot-com bubble and subprime crisis respectively. Therefore, there is relatively limited room for further expansion of rate cut expectations. Meanwhile, concerns about a slowdown in the US economy are increasing, reflected in increased volatility in the US stock market. Going forward, important data releases may continue to impact the sentiment of the US stock market.