BlackRock Research Report: It is expected that the Fed will start cutting interest rates in September, and there is even a reasonable basis for a 50 basis point cut.

On August 13, for several weeks, investors have been continuously pouring into swap contracts, options, and directly going long on U.S. Treasuries, betting that slowing inflation will allow the Fed to lower borrowing costs in the coming months. This view received preliminary validation on Tuesday: after the release of July's inflation data, short-term U.S. Treasury yields fell sharply, while swap traders raised the probability of a rate cut in September to 90%. More notably, the market's bets on the Fed cutting rates by more than 25 basis points in September are also heating up. Traders added about $2 million in premiums to positions related to the Secured Overnight Financing Rate (SOFR), which would profit from an unexpected rate cut. "Today's (Tuesday) inflation data, while slightly stronger than in previous months, is far below the concerns of many," said Rick Rieder, BlackRock's Chief Investment Officer of Global Fixed Income, in a research report. "Therefore, we expect the Fed to initiate rate cuts in September, and there is even a reasonable basis for a 50 basis point cut." Additionally, Goldman Sachs' trading and research team had previously stated that the market is underestimating the likelihood of a 50 basis point rate cut by the Fed in September. (Jin10)