Market Expects September Rate Cut: Will the 'Money Move' Begin?

Hello, Master. It's the morning of Saturday, August 30, 2025. On the cusp of September, all market eyes are fixed on one place: the U.S. Federal Reserve (Fed). Expectations are at an all-time high that the long, drawn-out cycle of rate hikes is finally over, and the long-awaited 'rate cut' is about to begin.

Let's take a closer look at what this historic turning point means for us, whether the celebration will truly begin as everyone hopes, or if there are unexpected pitfalls hidden within.

Mew

Master, I will begin the briefing. The market is currently treating a rate cut at the September FOMC meeting as an almost certain fact. The key data supporting this are as follows.

• Inflation Slowdown: The recently announced July Core Personal Consumption Expenditures (PCE) Price Index rose by 2.6% year-over-year, showing a stable trend approaching the Fed's 2% target. The July Consumer Price Index (CPI) also rose by only 2.7% year-over-year, indicating that inflationary pressures are clearly easing.


• Signs of a Cooling Labor Market: The U.S. unemployment rate for July rose slightly to 4.2%, signaling that the once-overheated labor market is gradually cooling down. The labor force participation rate also saw a slight decline, suggesting that wage growth pressure is decreasing.


• Economic Growth Rate: The revised U.S. GDP growth rate for the second quarter of 2025 was announced at an annualized 3.3%, showing a solid recovery from the negative growth of the first quarter. However, this data is a double-edged sword, as it both alleviates recession fears and supports the argument that the Fed doesn't need to rush to cut rates.


• Market Expectations: According to the CME's FedWatch Tool, the financial market is currently pricing in a probability of over 80% for a 0.25%p rate cut at the September FOMC meeting.

In summary, inflation is being tamed, the labor market is cooling, and the economy has avoided the worst-case scenario. This is the data-driven basis for the market's confidence in a September rate cut. That concludes the briefing.

Kurumi

My Lord! Did you hear that?! The moment has finally arrived! This news is like a welcome rain for investors! My heart is already racing towards September! Devilish!

First, the liquidity tap is being turned back on! The era of high interest rates that has been weighing us down is over, and this is the starting gun for money to flow back into the market! When rates are lower, companies can borrow more cheaply to build factories and invest in R&D. People's loan interest burdens will decrease, so they'll open their wallets wider! It's a magic spell that breathes life into the entire economy!

Second, it's time for growth stocks to dance again! The ones that suffered the most during the rate hikes were tech and growth stocks, right? Because high rates are fatal when discounting future profits to present value. Now, those shackles are coming off! Sectors that will lead the future, like AI, biotech, and clean energy, will make a spectacular comeback as the market's main characters!

Third, the 'money move' into risk assets will begin! There's less and less reason to keep money tied up in safe assets like bank deposits or bonds. Investors will have no choice but to return to riskier markets like stocks and crypto in search of higher returns. The September rate cut is like firing the starting pistol for that massive capital shift!

My Lord, this isn't just a simple rate cut. It's a celebratory cannon blast heralding the dawn of a new bull market! There's no time to hesitate!

Mikael

Kurumi, your excited voice sounds more like an alarm bell to my ears. It is far too early to celebrate. We must look at the essence of why the Fed is cutting rates.

First, a rate cut can be a signal that 'the economy is sick.' The Fed might be cutting rates not because everything is perfect, but to preemptively respond to an impending economic slowdown or recession. The moment everyone feels relieved about a 'soft landing,' why do you not consider the possibility that the shadow of a 'hard landing' is looming? There are numerous historical cases where the stock market actually fell after rate cuts began.

Second, this could be a classic 'Sell the News' trap. As Kurumi said, the market has already priced in the possibility of a September rate cut by over 80%. Good news that everyone knows is no longer good news. What if the Fed only cuts by the expected 0.25 percentage points, or if they adopt a cautious stance on the future economy while cutting rates? Investors who bought on expectation might start taking profits, causing the market to plummet instead.

Third, the ghost of inflation has not yet completely vanished. There is no guarantee that the current slowdown will continue. What happens if prices rise again due to variables like international oil prices or geopolitical risks? A premature rate cut could lead to the worst-case scenario of re-igniting inflation. If that happens, the Fed might have to resort to a 'Stop-and-Go' policy of raising rates again, which would be the worst outcome for the market.

Human, you can fall off a cliff by chasing the sweet candy right in front of you. Until you have confirmed every single sentence of the statement released with the Fed's decision and the nuances of Chairman Powell's press conference, premature optimism is forbidden.