Traders fully pricing US Fed interest rate cut in September

HONG KONG

Most equity markets rose on Thursday after the Federal Reserve flagged a possible interest rate cut next month.

U.S. central bank boss Jerome Powell said decision-makers were increasingly confident inflation and the economy were at a point where they could start loosening monetary policy.

After a highly anticipated two-day meeting where borrowing costs were kept at 23-year highs as expected, he told reporters the first reduction could come "as soon as" September if data continued to improve.

"The broad sense of the committee is that the economy is moving closer to the point at which it will be appropriate to reduce our policy rate," he said, adding there had been a "really significant decline in inflation."

Traders are now fully pricing in a reduction in September and almost two more before the end of the year.

"We continue to expect that the Federal Reserve will cut rates in September and December, followed by four 25 basis point reductions in 2025," said JP Morgan Asset Management's Raisah Rasid.

However, she added a word of warning in her commentary.

"Investors should be mindful of potential risks, which at times are underestimated, including the possibility of a sharper growth deceleration and the impact of geopolitical uncertainties on the growth backdrop."

And Jeff Klingelhofer at Thornburg Investment Management was also cautious, writing: "The market is assuming a September cut is a 100 percent certainty, but this is wrongheaded.”

"I'm sure the Fed wants to cut but there are still two inflation prints before September, so one bad piece of data could derail efforts."