In the past two weeks, Federal Reserve Chairman Powell has been frequently dovish.

On Monday, Eastern Time, Federal Reserve Chairman Powell stated that the economic data for the second quarter of the United States provided policymakers with greater confidence that inflation was moving towards the central bank's target of 2%, paving the way for potential interest rate cuts in the near future.

In addition, Powell reiterated last week's remarks during congressional hearings that interest rate cuts are not needed until inflation falls to the Fed's 2% target.

The Federal Reserve's communicator commented that Powell's latest speech implied an interest rate cut, although he refused to disclose the specific timing, market expectations of the July meeting are unchanged.

The "FedWatch" tool also shows that the market currently tends to cut interest rates for the first time in September, and is more likely to "stay put" at the meeting on July 30-31.

If interest rate cuts resume, which asset will benefit the most?

Futu Information has sorted out the performance of major asset categories in the past three interest rate cut cycles, for mooers' reference:

Looking at the most recent interest rate cut cycle, Bitcoin performed the best, with an increase of nearly three times throughout the interest rate cut cycle; the US stock market also performed well, with the NASDAQ rising by as much as 64%; among commodities, copper and crude oil performed the best.

According to the analysis of the performance of major asset categories before and after previous interest rate cut cycles by Guosen Securities, the following patterns can be observed:

Stock market: Who wins in terms of valuation and earnings depends on how the economic downturn happens. For the US stock market itself, the market prices the liquidity easing in advance and rises when there is a soft landing, with growth better than value. But if a crisis occurs, interest rate cuts may not stop the decline. As for the relative performance of global stock markets, fundamentals are the decisive factor, and China's stock market performs better than emerging markets as a whole during the loosening cycle.

Bond market: Run before the cut. From the end of the rate hike to before the interest rate cut, US bonds are priced loosely and have higher returns than after the interest rate cut begins. Economic marginal improvements may cause a slight pullback in US bonds.

US dollar: reflects the relative strength of the US and European economies and monetary policies. The US dollar generally goes down with expectations of loose Fed monetary policy, but if the US economy is relatively strong compared to non-US economies, the US dollar will not weaken.

Commodities: Contrary to the trend of the US dollar, but also depends on other attributes. During the interest rate cut cycle, gold and crude oil mostly rose due to the weakening of the US dollar, and gold may perform better in a hard landing scenario; crude oil is more sensitive to supply and demand factors.

However, due to the different background of interest rate cuts and the continuous large interest rate cuts in response to economic recession, which is significantly different from the small interest rate cuts under the soft landing of the current economic situation, the asset inspirations from historical experience cannot be "simply averaged".

How does Wall Street look at this?

In addition, Futu Information wrote an article titled "Federal Reserve Doves are Gradually Sounding the Alarm! Under the Interest Rate Cut Cycle, Which Assets are Worth Paying Attention To?""Federal Reserve Doves are Gradually Sounding the Alarm! Under the Interest Rate Cut Cycle, Which Assets are Worth Paying Attention To?"Although the Federal Reserve is expected to cut interest rates only once according to the dot plot in June, seven Wall Street banks predict that the Fed will cut interest rates twice by a total of 50bps this year. From the first interest rate cut time, more than half of the institutions expect the first interest rate cut to occur in September.

However, in just a short half-month, economists at Goldman Sachs have now said that they see enough reasons to support a rate cut by the Federal Reserve at its FOMC meeting in July. Despite this, Goldman Sachs has not changed its forecast that the Fed will start cutting interest rates in September.

Goldman Sachs' reasons are mainly as follows:

Firstly, if the reason for the interest rate cut is clear, why wait seven weeks to implement it?

Secondly, monthly inflation fluctuations are large. If there is a temporary acceleration of inflation in the United States in the future, the rate cut in September may be difficult to explain. Starting the rate cut in July can avoid this risk.

Third, even if the Federal Open Market Committee (FOMC) has never admitted it, it is indisputable that they have the motivation to avoid launching a rate cut in the last two months of the US presidential campaign.

Goldman Sachs concluded that this does not mean that the Federal Reserve cannot cut interest rates in September, but it does mean that a rate cut in July would be better.

Mooers,

When do you think the Federal Reserve will cut interest rates?

What is your trading strategy?

Feel free to leave your thoughts in the comments section~

Editor/Somer