While the fear that the US economy is drifting or entering a recession was reflected in the markets as sharp declines, traders started to expect the Fed to cut interest rates before the September decision through an ‘emergency meeting’.

60% expectation for an interim meeting

According to Yahoo Finance, while fears of high inflation have been replaced by recession concerns, it is thought that US growth will be cut until the Fed starts to cut interest rates. It was also written in the news that traders are expecting an emergency meeting and an early cut by about 60%.

50 basis points is almost certain

Investors expect the Fed to cut interest rates by at least 50 basis points in September, even if there is no ‘interim meeting’. According to the Fed Watch Tool chart, which keeps a finger on the pulse of futures markets, 94.5% of investors expect a 50-basis point cut and 5.5% expect a 25-basis point cut at the 18 September meeting.

Bond yields are falling rapidly

The declines also increased bond purchases. Markets are experiencing the biggest bond rally since the banking crisis last year. The yield on 2-year US Treasury bonds, known to be sensitive to Fed policies, fell 0.5% to 3.9%. Considering that the Fed’s interest rates are between 5.25% and 5.5%, this rate is quite low. Declines in German bunds also reached a 7-month high.

“I do think the economy will continue to slow.”

Tracy Chen, portfolio manager at Brandywine Global Investment Management, made the following statements on the subject:

“The market concern is that the Fed is lagging and that we are morphing from a soft landing to a hard landing, Treasuries are a good buy here because I do think the economy will continue to slow.”