On Thursday morning, the Federal Reserve began its easing cycle, cutting interest rates significantly, indicating its determination to prevent further deterioration of the labor market.

The Federal Reserve lowered its policy interest rate by 50 basis points for the first time, to a range of 4.75% to 5%. This gives the Federal Reserve and investors more time to prepare for what may happen next.

Erik Aarts, Senior Fixed Income Strategist at Touchstone Investments, said, "Our judgment is that we will see a soft landing." But he said that the interest rate market is still trying to figure out what will happen in the future.

Aarts said, "Regarding the old saying 'buy the news, sell the fact,' I think we will see some situations like this." Although he expects the next six months to be turbulent, he also expects buying opportunities, especially if the two-year and ten-year Treasury yields continue to rise from recent lows.

In a report to clients on Thursday, a group of interest rate and currency strategists at BofA Global wrote, "It is worth noting that as we enter this forthcoming cycle, market pricing shows a more significant ease than the six previous cases."

According to Torsten Slok, Chief Economist at Apollo Global Management, recent federal funds futures imply a nearly 2% decline in short-term interest rates, but this fluctuates from 2% to 4.5%, which is a "quite large range of outcomes," as the Federal Reserve begins raising rates in 2022.

In addition, investors trying to guide the future through history may be in vain. The BofA Global team believes that this easing cycle has no direct correlation with any recent one, and it is not even a scenario of the "soft landing" in 1995 that investors and the Federal Reserve hoped to replicate.

The price trend of the market in the past week has highlighted the difficulty of accurately predicting the path of interest rates, even when the Fed lowers short-term rates, long-term rates still rise.

Since the Fed cut interest rates on Wednesday, the yield on 10-year Treasury bonds has been rising.

Gennadiy Goldberg, TD Securities' head of US rate strategy, said in a report to clients on Thursday that he would buy when yields rise significantly. He still expects the yield on the 10-year Treasury bond to reach 3.5% by the end of the year, but the downward path will be a "tug of war".

Although the bond market has recently played an important role in driving the stock market, both the Dow Jones Industrial Average and the S&P 500 Index were at record highs on Thursday, seemingly having overcome any early concerns about a significant rate cut by the Federal Reserve.

Clearly, the trajectory of the labor market will play a crucial role in informing the Fed's next move on interest rates. The latest data shows that the number of people applying for unemployment benefits has fallen to the lowest level since May.

The performance of the stock market after previous cycles of Fed rate cuts has been mixed, and the economic situation determines whether investors will face significant losses or increased returns.

Meanwhile, Aarts of Touchstone said that the Fed has been "catching up with the labor market." He believes that the next six months should help investors clarify whether it has completed this task. However, he said that the interest rate market is still trying to figure out what will happen in the future.

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