Financial Association News on September 7 (Editor: Xiao Xiang) In one of the most anticipated 'non-farm nights' in the United States this year, many investors may not care about whether the U.S. job market is good or bad, they only care about one thing - after this night, will the Federal Reserve lower interest rates by 25 basis points or 50 basis points in September?

From the perspective of interest rate futures market betting, after continuous roller-coaster pricing swings, the camp betting on the Federal Reserve lowering interest rates by 25 basis points this month seems to have ultimately gained the upper hand.

The following picture undoubtedly shows how intense the confrontation between the '25 faction' and the '50 faction' in the U.S. interest rate market was last night:

The weaker-than-expected performance of non-farm data quickly gave the upper hand to the betting of a 50 basis point rate cut, but shortly after, people seemed to reconsider the non-farm data and felt that the performance was not too bad. The probability of a 50 basis point rate cut fell back from 60% to 40%;

And the more dramatic scene occurred after the speech by Federal Reserve Governor Bullard. This long-standing hawkish official within the Federal Reserve, who was also the last senior Federal Reserve official to speak before the blackout period.

Bullard said that day: 'If the data supports consecutive rate cuts, then I think consecutive rate cuts are appropriate. If the data indicates the need for a larger rate cut, then I will also support it. When inflation accelerates in 2022, I strongly advocated raising rates in advance, and now if appropriate, I will support an early rate cut.'

At first glance, Bullard's remarks are clearly dovish, which also quickly pushed the expectation of a 50 basis point rate cut by the Federal Reserve up to 65% after his speech.

However, a tweet from the renowned journalist Nick Timiraos, who is known as the "new FedWire", unexpectedly changed the market sentiment again. Timiraos' interpretation of Powell's speech is that Powell is inclined to support an initial 25 basis point rate cut and explicitly retains the option to accelerate the pace of rate cuts if "new data" shows further deterioration in the economy. According to Timiraos' speculation, the "new data" referred to by Powell does not include this week's non-farm data.

After the "(quasi-official) interpretation" by the "new FedWire" was released, the market's expectation of a 50 basis point rate cut by the Federal Reserve this month was completely dashed to 25%, and there has been no improvement since then.

According to the CME Group's FedWatch Tool, as of the close of trading on Friday, market traders have a 70% probability expectation of a 25 basis point rate cut by the Federal Reserve this month, and a 30% probability expectation of a 50 basis point rate cut.

There is no doubt that there have been frequent ups and downs in the betting on how much the Federal Reserve will cut interest rates this month overnight, which is truly remarkable. Although the camp supporting a "25 basis point rate cut" has temporarily gained the upper hand overnight, it is still uncertain whether they can continue to laugh until the day of the Federal Reserve's interest rate meeting.

The frequent fluctuations in the market's betting on the non-farm data night have also led to an unprecedented scene in the US interest rate futures market last night: by only 1:00 am Beijing time on Saturday, the trading volume of the second most active expiration date of the US federal funds futures contract reached 0.9 million contracts, setting a new record for the highest single-day trading volume in any contract since the appearance of this trading instrument in 1988.

There were traces of several large transactions in the federal funds futures market that day. Among them, at 10:04 am Eastern Time before Powell's speech, 0.012 million contracts were sold at a price of 95.025, and at 11:04 Eastern Time after his speech, 0.025 million contracts were sold at a price of 95.050. At 11:32 am, 0.02 million contracts were sold at a price of 94.98.

It is worth mentioning that in a recent report released in the early morning Beijing time, investment bank Goldman Sachs also stated that Federal Reserve Board Governor Powell and New York Fed President Williams' speeches indicated that the Fed's decision-making body will consider a 25 basis point rate cut at the upcoming September meeting.

Jan Hatzius, Chief Economist at Goldman Sachs, pointed out, 'We believe that these statements are consistent with our forecast of a 25 basis point rate cut in September. If the labor market continues to worsen, the Fed's leadership will be willing to cut rates by 50 basis points at subsequent meetings.'

Previously, in another report after the non-farm payrolls, Goldman Sachs stated that the latest non-farm data would support its expectation of a 25 basis point interest rate cut by the Federal Reserve in September. Hatzius said, 'We believe that this report is not enough to prompt the FOMC to cut interest rates by 50 basis points at the September meeting.'

Editor/Somer