With more than one day to go before the results of the September interest rate meeting are released, the market's bet on a 50 basis point increase is growing.

Under this influence, the US stock market$S&P 500 Index (.SPX.US)$hovered below historical highs on Monday after last week's best weekly gain of the year; the Dow Jones Industrial Average reached intraday and closing record highs on Monday.

Spot gold once rose to $2,589.70, reaching a historical high. COMEX gold futures once rose to $2,617.40, marking the third consecutive trading day of intraday record highs.

The yen continues to appreciate, and the USD/JPY briefly fell below the 140 level, with the lowest reported at 139.582, and it has now returned to above 140.

The call for a significant interest rate cut is growing louder.

Former New York Fed Chairman Bill Dudley wrote on Monday local time that the logic behind supporting a 50 basis point rate cut is convincing. He expects the Fed to cut rates by 50 basis points.

He pointed out that the two goals of the Fed's dual mandate - price stability and maximum sustainable employment - are increasingly balanced, indicating that monetary policy should be neutral, neither suppressing nor promoting economic activity. However, short-term interest rates are still far above neutral levels, and this gap needs to be corrected as soon as possible.

He believes that from an economic data perspective, it can even be said that the downside risk to employment is greater than the upside risk to inflation. When the labor market deteriorates to a certain extent, this process often becomes self-reinforcing. Considering that the rise in unemployment is mainly driven by rapid labor force growth, the threshold this time may be higher. But this does not negate the existence of a critical point, where the labor market has either crossed the threshold or is approaching it.

At the same time, the market's bet on a 50 basis point rate cut has increased.

The market expects a 67% probability of a 50 basis point rate cut at this meeting, a 33% probability of a 25 basis point rate cut; a 44.3% probability of a 100 basis point rate cut during the year, and a 29.5% probability of a 75 basis point rate cut.

Some Wall Street banks also predict a 50 basis point rate cut.

JPMorgan economists reiterated last week that they expect the Fed to cut rates by 50 basis points this week.

Andy Brenner, Head of International Fixed Income at NatAlliance, said, "This will be a very difficult decision, but I believe the Fed should cut rates by 50 basis points. Of course, I also believe the Fed should cut rates in June and July."

He pointed out that the retail sales data to be released on Tuesday is expected to be weak, which may help consolidate the reasons for a larger interest rate cut.

The reason for not making a significant interest rate cut.

However, some institutions believe that the Federal Reserve will not cut interest rates by 25 basis points.

BlackRock said on Monday that due to the strong resilience of the economy and the persistent high inflation rate, the Federal Reserve may not cut interest rates as much as the market expects.

BlackRock pointed out: 'As the Federal Reserve prepares to cut interest rates, the market's expectations for the extent of rate cuts are as strong as during previous economic recessions. We believe that these expectations are somewhat excessive.'

BlackRock believes that labor force aging, continued budget deficits, and geopolitical divisions will result in inflation and policy interest rates remaining at higher levels in the medium term.

BlackRock stated that in the short term, it has a negative outlook or puts on US Treasury bonds as the current yields reflect expectations of a large interest rate cut; it maintains an increased stake in US stocks due to its optimistic view on the impact of artificial intelligence.

If the Federal Reserve fails to cut interest rates by 50 basis points this time, possible reasons, according to Dudley, may include:

First, the expected target for short-term interest rates is more important than the rate cut speed. Expectations drive long-term interest rates, including mortgage rates. Considering a cut of about 250 basis points by the end of 2025, the rate cut this week should not have a significant impact.

Second, the Federal Reserve wants to ensure that it has already defeated inflation. It has been fooled before: earlier this year, inflation rebounded, forcing the central bank to maintain high rates for a longer period of time. Powell doesn't want to repeat Bern's mistake, who did not persist in reducing inflation in the 1970s.

Third, despite a slowdown in the US economy and a weakening labor market, there is little evidence to suggest that it is in or near a recession.

Lastly, smaller measures may prevent Trump from complaining about the Fedster boosting the economy to improve Harris's prospects before the election. Fed officials probably prefer to stay as far away as possible from this year's election politics.

Editor/Rocky