The Federal Open Market Committee (FOMC) of the United States announced the minutes of the monetary policy meeting held on the 17th to 18th of last month last night (9th), showing that Federal Reserve officials have differing views on the economic outlook and the extent of rate cuts. After the release of the FOMC meeting minutes, the market also began to change its expectations for rate cuts in November, believing that the probability of no rate cuts in November has increased.

The Federal Open Market Committee (FOMC) of the United States announced the minutes of the monetary policy meeting held on the 17th to 18th of last month last night (9th), which showed that all officials of the Federal Reserve (Fed) agreed on the rate cut, but there was still disagreement on whether to cut rates by 1 or 2 percentage points.

Reasons for supporting a rate cut of 1 or 2 percentage points?

According to the meeting minutes, officials who supported a rate cut of 1 percentage point believed that it is necessary to ensure that inflation continues to decline, and the situation in the labor market is not very severe:

Several participants pointed out that a rate cut of 1 percentage point would be in line with the gradual normalization of policy, allowing policymakers time to assess their policy as the economy develops.

As for the reason for a rate cut of 2 percentage points, the FOMC meeting minutes pointed out that it was because most officials took into account the progress of inflation and the risks in the labor market:

It is generally believed that such a readjustment of the monetary policy stance can be adapted from the start to recent inflation and labor market indicators.

Some officials even believe that there was a reasonable basis for implementing a rate cut of 1 percentage point in July, and recent economic data has further strengthened their reasons for a rate cut.

Federal Reserve's Daly: There may be one or two more rate cuts this yearFollowing the release of the FOMC meeting minutes, Federal Reserve official Daly expressed his full support for the decision to cut rates by 50 basis points in September, and indicated that the Fed may cut rates once or twice more this year. However, the magnitude of the September rate cut does not necessarily indicate the extent and pace of future rate cuts.

Nevertheless, Citadel Securities has a more pessimistic view on rate cut expectations, believing that a strong U.S. economy and persistent inflation will lead the Fed to cut rates only once more this year. Michael de Pass, Global Head of Interest Rate Trading at Citadel Securities, stated:

"I will boldly say that for the remainder of this year, we will ultimately only see a 25 basis point rate cut. Although the market still suggests a 50 basis point rate cut, this seems a bit high considering the underlying strength of the economy and the stickiness of inflation."

Market Estimates Suggest No Rate Cut in November

Additionally, the latest data from the CME Group's FedWatch tool shows that, contrary to the previous consensus that the Fed would continue to cut rates in November, the market now estimates that the probability of maintaining the current interest rate in November has risen from 0% last week to 17.1%, the probability of a 25 basis point rate cut stands at 82.9%, and the probability of a 50 basis point rate cut has dropped to 0%.