On Thursday, September 19th at 02:00 Beijing time, the Federal Reserve will hold an interest rate decision. This meeting has an unusual and mysterious atmosphere. Will the Federal Reserve adopt the traditional approach of cutting interest rates by 15 basis points or 25 basis points? Or take a positive first step by cutting interest rates by 50 basis points? Federal Reserve observers are uncertain.

This week's Federal Reserve decision has many highlights, including the release of semi annual and quarterly reports, updates on future interest rate cut forecasts, and adjustments to economic estimates.

Wall Street predicts that there is a greater possibility of the Federal Reserve cutting interest rates by 25 basis points this week

In recent weeks, Federal Reserve Chairman Powell and his fellow policymakers have no doubt that interest rate cuts will occur at this meeting. The decision to cut interest rates requires weighing the pros and cons between fighting inflation and the significant slowdown in the labor market over the past few months.

According to CME's "Federal Reserve Watch", the probability of the Federal Reserve cutting interest rates by 25 basis points in September is 37.0%, and the probability of cutting interest rates by 50 basis points is 63.0% (the previous day's forecast was 67%). The probability of the Federal Reserve cutting interest rates by 50 basis points cumulatively until November is 18.7%, the probability of cutting interest rates by 75 basis points cumulatively is 50.2%, and the probability of cutting interest rates by 100 basis points cumulatively is 31.1%. 100% of major economists in the United States expect the Federal Reserve to cut interest rates this week, but the vast majority of economists predict a 25 basis point rate cut, with only 17% predicting a 50 basis point rate cut.

Many Wall Street insiders continue to predict that the Fed's first step will be more cautious, with many institutions currently predicting a greater likelihood of a 25 basis point rate cut.

JPMorgan CEO Damon said that the Federal Reserve will cut interest rates, but not in a groundbreaking manner.

BlackRock said that the Federal Reserve is expected to cut interest rates by 25 basis points this week, and the market's aggressive expectation of a rate cut is unlikely to come true. Chief investment strategist Wei Li believes that the market previously speculated that the Federal Reserve had waited too long for easing and would now be forced to cut interest rates at a faster pace to support the economy, but this speculation is incorrect.

Seema Shah, Chief Global Strategist at Principal Asset Management, stated that for the Federal Reserve, the ultimate decision is to determine which risk is greater - a 50 basis point cut would reignite inflationary pressures, or a 25 basis point cut would threaten an economic recession. The Federal Reserve has been criticized for its slow response to the inflation crisis. Therefore, the Federal Reserve may be cautious in responding to the risk of economic recession, avoiding passive responses rather than proactive ones.

Mark Zandi, Chief Economist of Moody's Analytics, said, "I hope they can cut interest rates by 50 basis points, but I suspect they will cut interest rates by 25 basis points. I want to cut interest rates by 50 basis points because I think interest rates are too high. The United States has achieved its mission of full employment and inflation back to target, which is inconsistent with the fund rate target of around 5.5%. So I think they need to quickly normalize interest rates, and there is a lot of room to achieve this goal

Bridgewater Fund founder Ray Dalio said that based on the overall situation of the US economy, the Federal Reserve may slightly lower interest rates this week. He believes that if viewed as a whole, 25 basis points would be correct. In the long run, the decision made by the Federal Reserve this week will ultimately have no impact. He stated that policy makers need to keep real interest rates low in order to be able to repay the increasing debt.

Tom Simons, an American economist at Jefferies, said, "Although tightening policies may seem effective, they have not worked exactly as they imagined, so loose policies should be seen as equally uncertain. Therefore, if you are unsure, you should not rush

Steve Englander, Global Head of G10 Forex Research and North American Strategy at Standard Chartered Bank, still maintains his expectation that the Federal Reserve will only cut interest rates by 25 basis points. Based on recent economic data, Standard Chartered believes that a 50 basis point interest rate cut is not imminent, and inflation data does not support a rapid decline in inflation to the Federal Reserve's target of 2%.

The Federal Reserve statement and Powell's press conference are also the focus of market attention. Goldman Sachs expects that the Federal Open Market Committee "may revise its statement to have more confidence in inflation, describe inflation and employment risks as more balanced, and once again emphasize its commitment to maintaining full employment

Jeffrey economist Tom Simons said, "I don't think they will give any specific forward guidance. At this stage of the cycle, when the Federal Reserve actually doesn't know what they're going to do, forward guidance is almost useless

Market impact

Goldman Sachs stated that if the Federal Reserve only cuts interest rates by 25 basis points this week, gold prices may experience some tactical pullback in the short term. However, with the help of increased funds flowing into gold backed ETFs, gold will rebound to record levels.

Goldman Sachs reiterated its previous forecast that gold prices will soar to $2700 per ounce early next year.

Daily chart of spot gold