What is the impact of the extent of interest rate cuts at the September FOMC meeting on the market?

Personally, I think the probability of a 25-basis-point cut is slightly higher than that of a 50-basis-point cut (although FedWatch predicts a 50-basis-point cut as more likely).

Because apart from the sluggish job market, other data points to a soft landing (unless the data is fabricated).

First, no rate cut (probability close to 0).

Under the current circumstances, if there is no rate cut in September, the likelihood of a hard landing and recession later on increases.

It would have little short-term impact on U.S. stocks but be bearish in the long term.

For the yen, U.S. Treasuries, and gold, it would be bearish in the short term but bullish in the long term.

Second, a 25-basis-point cut.

This would be a preemptive rate cut, with the Fed hoping to prevent inflation from heating up further while rescuing the sluggish job market.

It would be bullish for U.S. stocks.

The impact on the yen, U.S. Treasuries, and gold would be minimal, with slight gains or losses possible (as the market partially expected a 50-basis-point cut).

Finally, a 50-basis-point cut.

This outcome would spark concerns about a recession in the market.

It would be bearish for U.S. stocks.

It would be bullish for the yen, U.S. Treasuries, and gold.

The above analysis is purely based on the impact of the rate cut outcome. The final market direction will also depend on the dot plot and Powell's remarks.

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