The Fed’s September rate cut is nearly a foregone conclusion, with market focus shifting to the cut size and subsequent path

The CME FedWatch tool currently shows a 70% probability of the Fed cutting rates by one quarter-point (25 basis points) in September and about 30% for a half-point cut (50 basis points), indicating that the market has fully priced in a rate cut. However, the true source of volatility lies in the post-meeting statement and the dot plot’s projection for the 2025 median interest rate. If Powell signals a “preventive rate cut” and indicates that room for further cuts remains, the US Dollar Index could fall below the 100 mark, while US technology and growth stocks could see a valuation re-rating, with the Nasdaq potentially challenging 18,500 points. Conversely, if he emphasizes that “the fight against inflation is not yet complete” and hints that the pace of rate cuts will slow, bond yields could rebound, while financial and value stocks would be relatively more resilient. From a technical perspective, S&P 500 futures are fluctuating around 5,600 points. If the size of the rate cut meets expectations, a short-term pullback driven by “buying the rumor, selling the fact” could occur. It is recommended to reduce equity exposure to 60% before the rate decision and hedge by purchasing VIX call warrants. Volatility is likely to be greatest within 30 minutes after the announcement. It is advisable to wait for a clear direction before trading with the trend, with an upside target of 5,700 points and downside support at 5,500 points.