Why has the recent "interest rate cut expectation" by the Federal Reserve heated up?

Several institutions have recently predicted that the Fed may cut rates by about 25 basis points (i.e., 0.25%) at the December meeting.

Reasons include signs of weakness in the recent U.S. job market — a cooling labor market puts pressure on economic growth.

Additionally, some economic data and inflation trends have intensified the calls for rate cuts, leading the market to anticipate that the Fed will further relax monetary policy.

The probabilities given by trading tools (such as CME Group's "FedWatch") show that the current market betting on a rate cut in December is very high.

Impact of rate cut expectations on the market and assets

Rate cut expectations are not just about "interest rates going down," but have a wide-ranging impact — including stocks, bonds, the dollar, precious metals, etc. The main impacts include:

Boosting risk assets — A rate cut means lower borrowing costs, stimulating the economy, benefiting the performance of stocks, corporate bonds, high-yield bonds, growth companies, etc.

Bond yields decrease — As interest rates decline, bond yields, especially long-term government bonds, typically fall, and prices rise.

The dollar may weaken, and precious metals may benefit — A decline in interest rates usually puts pressure on the dollar, while precious metals like gold may rise due to increased attractiveness.

Impact on credit and consumer costs — Lower borrowing costs benefit corporate financing, consumer loans, mortgages, etc., supporting consumption and investment activities.

What does the market think now?

Most market participants currently believe that the possibility of the Fed cutting rates at the end of 2025 (December meeting) is very high.

However, this does not mean that a rate cut will happen "unconditionally" — Fed officials are still focused on key data such as inflation, employment, and economic growth. If the data improves, the rate cut may also be delayed or the magnitude reduced.

What does this mean if you are an investor/observer?

If you allocate stocks, bonds, and international assets — now may be the time to reassess and reallocate your asset portfolio. Rate cut expectations may drive up stocks, commodities, and overseas assets.

If you prefer stable income (such as bonds, fixed income, deposits) — a rate cut may mean reduced returns, and you need to consider interest rate risk.