The Federal Reserve signals interest rate cuts: a loosening cycle may begin in September, with more than two rate cuts expected within the year.

Recent signals from Federal Reserve officials regarding monetary policy indicate that the United States may soon begin a rate-cutting cycle.

Mary Daly, the president of the San Francisco Federal Reserve, stated in a speech on August 5 that as signs of a weakening job market increase and tariffs do not lead to persistent inflation, the timing for interest rate cuts is approaching.

She emphasized that although the interest rate cut in September is not a foregone conclusion, "the necessity of policy adjustments will be assessed in real-time at every FOMC meeting in the future," breaking the traditional cadence of policy adjustments by the Federal Reserve.

Dai Li pointed out that the Federal Reserve's prediction of two rate cuts of 25 basis points each within the year in June remains the baseline scenario, but the actual number of cuts may be more.

She explained: "If the labor market remains weak and inflation shows no spillover effects, we may need to cut interest rates more than twice; conversely, if inflation rebounds or employment improves, it may be less than twice." This flexible stance reflects that the Federal Reserve is trying to seek a balance between controlling inflation and supporting the economy.

The market responded quickly, with the CME FedWatch tool indicating that traders have raised the probability of a rate cut in September to 91.6%. The dollar index fell slightly in response, U.S. Treasury yields retreated, and technology stocks and precious metals rose simultaneously. This market pricing corresponds with the weak non-farm payroll data in July, which showed only 73,000 new jobs added, and the data from the previous two months was significantly revised down, with the unemployment rate slightly increasing to 4.2%.

It is worth noting that there are significant differences within the Federal Reserve regarding the policy path. At the recent meeting, two governors unusually voted against keeping interest rates unchanged, advocating for an immediate rate cut. Daly's statement seems to align more closely with this position, as she candidly said: "I am willing to wait another cycle, but I can't wait forever," implying the urgency of a policy shift.

Looking ahead, the August non-farm payroll data will become a key decision-making basis. If the job market continues to weaken, the Federal Reserve may initiate interest rate cuts in September and consider more easing operations before the end of the year. This expectation is reshaping the global asset allocation landscape, and investors need to closely monitor the chain effects of policy shifts on the stock market, bond market, and foreign exchange market.

Do you think the Federal Reserve will initiate its first rate cut in September? If the Federal Reserve cuts rates more than twice this year, which assets will benefit significantly?

#September Rate Cut Expectations