September Fed rate cut a certainty amid soft inflation outlook. Since the release of June’s CPI data, the odds of a September Fed rate cut have surged to near certainty and the subsequent July numbers reaffirmed this view. Going by the Fed Funds Futures, traders are pricing-in a 100% probability of one rate cut in September and a 40% chance of a second cut during the meeting. Whether the Fed will go all out to cut 50 bps remains to be seen as the central bank would want to avoid being perceived as “panicking”. In any case, policy rates are poised to head south from here with 8-9 cuts expected by end-2025.
Fed policy easing positive for US small caps as rally broadens. Despite weaker-than expected jobs data, an economic soft landing for the US remains our base-case assumption and this is constructive for risk assets. As the US equity rally broadens, we expect small caps to benefit from a falling rates environment. Medium-term momentum for the small-caps space include:
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