In the early hours of September 18 Beijing time, the Federal Reserve announced a 25-basis-point cut to the federal funds rate target range, bringing it to 4.00%–4.25%. In response, the latest research report from Sun Binbin’s team at Caitong Securities (601108) commented that the FOMC decision was in line with expectations, with a dovish tone focusing on employment risks. The dot plot signals more rate cuts, but the press conference remarks leaned hawkish. Short-term U.S. bonds may exhibit bull steepening, while the U.S. dollar is expected to remain weak.

Sun Binbin’s team stated that the Federal Reserve, as expected, announced a 25-basis-point cut to the federal funds rate target range, marking the first rate cut in 2025. The tone of the policy statement aligned with market expectations, with neutral wording but a heightened focus on economic downside risks. The Fed acknowledged the slowdown in economic growth in the first half of the year and added phrases such as "the unemployment rate has begun to rise" and "the risks of employment deterioration have started to increase," indicating a policy shift toward prioritizing employment goals. The decision was opposed only by new Governor Milan, who favored a 50-basis-point cut, highlighting that internal disagreements within the Fed primarily revolve around the pace of rate cuts rather than the direction.

The latest dot plot shows that the median forecast of Federal Reserve officials indicates two additional rate cuts within the year. Sun Binbin’s team believes that the market may continue to price in the easing path ahead of time, driving down short-term rates and potentially leading to a bull steepening of the U.S. Treasury yield curve. The 2-year U.S. Treasury yield is expected to fluctuate within the 3.44%–3.84% range, while the 10-year U.S. Treasury yield may oscillate between 3.9% and 4.3%. Simultaneously, as the Fed embarks on a rate-cutting cycle, the interest rate advantage of the U.S. dollar will narrow, and the U.S. Dollar Index is likely to remain weak.