At 2:45 am peking time on Thursday, Federal Reserve Chairman Powell was invited to be interviewed at the DealBook/Summit conference hosted by the new york times. There is no doubt that he will be asked a series of sharp policy questions.

When the Federal Reserve finally began the long-awaited rate cut cycle in September, the market thought it was too dovish. At that time, the Federal Open Market Committee (FOMC) cut rates significantly by 50 basis points and is expected to cut another 150 basis points by the end of 2025. In response, traders pushed up bond yields and the dollar.

The market spent more than two months repricing the bet on a Federal Reserve rate cut.

This seemingly counterintuitive reaction indicates that people generally believe that as the Federal Reserve begins to cut rates amid rapid economic growth, inflation pressures may increase again, and this level of stimulus measures is unlikely to materialize. The price growth expectations reflected in the bond market - the so-called 'break-even inflation rate' - have risen sharply.

Two months after this round of repricing wave, $U.S. 10-Year Treasury Notes Yield (US10Y.BD)$ The average exchange rates against major currencies rose by nearly 8% while the dollar fell by almost 6%. As for the Fed itself, it has softened its tone, emphasizing that rate cuts will not be on autopilot and will be prepared to address re-inflation risks, even if it cuts rates by 25 basis points again in November.

Currently, federal funds interest rates futures imply a 73.8% chance of another 25 basis point rate cut at this month's FOMC meeting by the Federal Reserve. The market also expects a rate cut of 63 basis points in 2025. This is equivalent to at least two standard rate cuts, with a 52% chance of a third rate cut.

Will Powell once again cause chaos among traders?

The minutes of the November FOMC meeting show that the "vast majority" of participants expect a 25 basis point rate cut in December. This is consistent with the September forecast, which at that time predicted that the Fed would cut rates by a total of 100 basis points by 2024, with 75 basis points already cut so far.

If the next policy moves are almost certain, then next year's outlook will become a topic of active speculation. Since the Fed began easing in September, the market's bet on its rate cuts next year has halved. Will Powell's comments trigger continued adjustments?

Overall, this seems unlikely. The FOMC meeting minutes show that despite some recent stagnation, the majority expect inflation to sustainably reach the 2% target. "Many" participants express regret over data fluctuations and emphasize focusing on underlying trends. Powell may try not to disrupt the status quo, especially when key employment data has not yet been released.

If Powell's moderate remarks do not make headlines, this could give the green light to stabilize market rate cut expectations over the past two weeks. Bonds have started to edge up slightly, and the dollar has fallen. Such adjustments may still have room to run.

Editor/Rocky