- Markets now fully price in an October Fed rate cut.
- Fed must end Quantitative Tightening (QT) to trigger a rally.
- Eyes on FOMC decision for broader policy shifts.
Market Fully Prices In a Fed Rate Cut
Investors and traders now believe there’s a 100% chance the U.S. Federal Reserve will cut interest rates this October. Market sentiment has shifted dramatically in recent weeks amid soft economic data, rising geopolitical risks, and tightening financial conditions.
Futures markets and rate-sensitive assets are already reflecting this expectation. However, despite the near-certainty of a rate cut, analysts warn that a true market rally may not happen unless the Fed also halts Quantitative Tightening (QT)—its process of shrinking the balance sheet.
Why QT Still Matters
Quantitative Tightening, or QT, involves the Fed reducing its holdings of Treasuries and mortgage-backed securities. While rate cuts inject short-term liquidity, QT still drains longer-term liquidity from the financial system.
Some experts argue that a rate cut alone might not be enough to fuel a rally. The market is watching closely for signs that the Fed may go a step further by ending QT altogether. Such a move would significantly boost market confidence, potentially sparking a sharp rebound in both stocks and crypto.
Until then, investors remain cautious. Many see the upcoming FOMC statement as a key moment not just for interest rates, but for a broader shift in monetary policy.
What Comes Next?
With inflation softening and labor markets cooling, the Fed has room to ease. But Chair Jerome Powell has so far stayed non-committal about ending QT, aiming to strike a balance between stimulus and inflation control.
If the Fed does both—cut rates and end QT—it could mark a clear pivot toward easing, giving markets the green light for a sustained rally. Until then, the sentiment is hopeful but fragile.
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