Fed rate cut probability surges to 99.9%, fueling risk-on sentiment in stocks, gold, and crypto.

Fed rate cut probability surges to 99.9%, fueling risk-on sentiment in stocks, gold, and crypto.

The probability of a Federal Reserve interest rate cut has surged to 99.9%, according to the latest data from CME Group’s FedWatch tool. This significant increase in the likelihood of a rate cut has fueled a risk-on sentiment across various asset classes, including stocks, gold, and cryptocurrencies [1].

U.S. Treasury Secretary Scott Bessent has been vocal about his expectations for the Federal Reserve. In an interview with Bloomberg, Bessent suggested that the central bank should consider a 50 basis point rate cut in September, which is significantly higher than the 25 basis points that traders have currently factored in [1]. This stance has been backed by recent economic data, such as the modest increase in goods prices for July, which has reinforced expectations of a more aggressive Fed response.

The risk-on sentiment is also being driven by easing global trade tensions and a strong second-quarter earnings season in the U.S. Additionally, comments from various Fed officials have added to the expectation of a rate cut. Richmond Fed President Tom Barkin, for instance, mentioned that the central bank should focus on labor-market weakness, while Kansas City Fed President Jeff Schmid supports holding rates steady for now but is prepared to shift his stance if demand growth weakens [2].

The surge in rate cut probability has had a notable impact on financial markets. U.S. equities gained in Wednesday’s pre-market session, with the SPDR S&P 500 ETF (SPY) and the Invesco QQQ Trust (QQQ) showing gains of 0.27% and 0.34%, respectively [1]. Gold prices have also benefited from the risk-on sentiment, while cryptocurrencies, such as Bitcoin and Ethereum, have shown significant gains.

The increase in rate cut probability has been met with optimism from investors, who expect the Fed to take a softer stance on interest rates. However, there is still uncertainty about the balance between curbing inflation and supporting the labor market. As the Federal Reserve prepares for its September meeting, investors will closely watch the economic data and comments from Fed officials for further clues on the central bank’s policy stance.

References:
[1] https://in.investing.com/news/stock-market-news/scott-bessent-says-interest-rates-should-be-150175-basis-points-lower-report-4961270
[2] https://finance.yahoo.com/news/p-futures-gain-fed-rate-101255738.html