Yesterday, the European Central Bank announced a 25 basis point rate cut, ahead of the Federal Reserve. The European Central Bank announced its latest interest rate decision, lowering the key deposit rate by 25 basis points, and the main refinancing and marginal loan rates by 60 basis points. After the announcement of this decision, U.S. stocks and international gold rose sharply at the same time.
The reason is that the European Central Bank's previous monetary policy was basically consistent with the Federal Reserve, and this time the European Central Bank cut interest rates before the Federal Reserve, which directly means that the probability of the Federal Reserve's interest rate cut on September 19 has increased to 100%, which is consistent with market expectations.
Can the European Central Bank's early announcement of a 25 basis point rate cut stimulate the Federal Reserve to cut interest rates by 50 basis points on September 19, which is beyond expectations?
There is such a probability, but the probability is not high. At present, the market and financial institutions predict that the probability of the Federal Reserve cutting interest rates by 25 basis points has increased to 90%, and the probability of a 50 basis point rate cut exceeding expectations is only 25%.
The reason is some data recently released by the United States. The CPI data in August fell to a new low of only 2.5% since 2021, and the core inflation rate is also constantly decreasing. These data all indicate that the expected probability of a US recession is much smaller, so there is no need to use extraordinary monetary policy to stimulate the current US economy.
From this perspective, I personally prefer that the Federal Reserve will most likely follow the pace of the European Central Bank on September 19 and only cut interest rates by 25 basis points, but the scale of interest rate cuts within the year may reach 100 basis points. In short, the US dollar's interest rate cut cycle has begun this month, and the logic of the current market trading is basically some financial changes after the US dollar interest rate cut.
