Fed Rate Cut Expectations Surge Amid Mixed U.S. Economic Data and Market Volatility

Recent mixed economic data from the United States has not only highlighted a slowdown in growth momentum but has also amplified expectations for a Federal Reserve policy shift.
External factors such as geopolitical conflicts and trade tensions, combined with domestic elements like election developments, suggest that market volatility could persist in the near term.

Last week, various dynamics caused expectations for a Federal Reserve rate cut to shift dramatically overnight, resulting in significant stock market fluctuations.
As the dampening effects of high-interest rates continue to manifest, any new developments are likely to cause further market volatility.

In its recent monetary policy meeting on July 31, the Fed opted to maintain current interest rates.
However, it acknowledged the possibility of a rate cut in September if inflation continues to recede.
Subsequently, on August 2, U.S. Labor Department data revealed that the nonfarm sector added only 114,000 jobs in July, significantly below the anticipated 180,000.
The unemployment rate increased to 4.3% from June's 4.1%, sparking recession fears and resulting in sharp declines across major indexes on the New York Stock Exchange, including the Nasdaq Composite entering correction territory.

Weaker-than-expected economic indicators reinforce the notion that the U.S. economy is losing steam, thereby increasing the market's appetite for a Federal Reserve rate cut.
Some economists argue that prolonged high rates could inflict greater damage on the economy, urging the Fed to act sooner to mitigate risks.
In response to the July nonfarm employment data, several financial institutions adjusted their rate cut forecasts, with some even predicting consecutive 50-basis point cuts this year.

Since late last year, the Fed's messaging on rate cuts has been as uncertain as the U.S. economic data itself, with Fed Chair Powell moving away from forward guidance and adopting a data-dependent approach.
This introduces a range of uncertainties, from the anticipation to the implementation of rate cuts.

Concerns over the U.S. economic outlook are mounting.
Although rate cuts are often seen as a signal of slowing economic growth or impending recession, market discrepancies between expectations and actual policy can lead to market sell-offs when reality does not meet expectations.
Even if rate cuts become likely, timing, magnitude, and subsequent policy paths remain uncertain, which might prompt investors to adopt a wait-and-see approach, or even pre-emptively sell off stocks to hedge potential risks.

Changes in corporate earnings forecasts are also noteworthy.
While rate cuts can reduce borrowing costs for businesses, a slowing economy could still depress sales and profits, negatively impacting stock prices.
High-valuation sectors like tech could face added earnings pressure and market adjustments.
Recently, disappointing earnings reports from tech giants such as Alphabet, Microsoft, and Amazon, alongside significant stock sell-offs by Berkshire Hathaway and layoffs at Intel, have led to sharp declines in related tech stocks, damping market sentiment.

Additional factors such as geopolitical tensions, trade disputes, and internal political developments continue to affect market sentiment.
In light of these dynamics, market expectations are likely to remain unstable, suggesting ongoing volatility in U.S. markets up to and possibly beyond the September Federal Reserve policy meeting.