The financial market has received a piece of heavy news, and the expectation of a U.S. interest rate cut in September is almost a foregone conclusion.

[Key economic indicators released]

Important economic indicators released in the United States in the evening revealed new clues about economic dynamics. Business inventories in May reached a monthly rate of 0.5%, exceeding expectations of 0.4%, marking the largest increase since August 2022. In contrast, the NAHB housing market index fell to 42 in July, below expectations of 43, and also hit its lowest point since December 2023. The release of the two data had a positive impact on the precious metals market.

[Interest rate cut expectations are rising across the board]

CME Group's FedWatch tool data shows that the probability that the Federal Reserve will lower the federal funds rate target range from the current 5.25% to 5.5% to 5% to 5.25% in September has climbed to 93.3%. Some market participants even predict that interest rate cuts may be initiated as early as the interest rate meeting at the end of July and implemented again at the subsequent September meeting. The expected probability of a rate cut in September has surged to 100%, significantly higher than the 70% level a month ago. The key to the turning point lies in the U.S. Consumer Price Index (CPI) in June. This data showed that the price level dropped by 0.1% month-on-month, and the year-on-year growth rate dropped to 3%, the lowest in the past three years. Federal Reserve Chairman Powell's recent remarks have further strengthened market expectations. He pointed out that due to the lag in policy effects, the Fed does not need to wait until inflation returns to the 2% target before taking action, but needs to have greater confidence in the benign trend of the inflation path.

[Institutions call for seizing the opportunity]

Jan Hatzius, chief economist of Goldman Sachs Group, suggested in a research report on July 15 that given the latest unemployment and inflation data, the Federal Reserve should consider cutting interest rates at its policy meeting at the end of July. Hatzius analyzed that the appropriate federal funds rate should be 4%, significantly lower than the current level of 5.25% to 5.5%. Combined with encouraging June CPI data and Chairman Powell’s testimony to Congress last week, Hatzius predicts that the rate cutting cycle is about to begin.

Please note that the above content is for information sharing only and does not serve as any financial or investment advice. Independent professional advice should be sought when making any investment decision.