After Federal Reserve Chairman Powell put the possibility of a rate cut in September directly on the table, unexpectedly weak US economic data has intensified the bond market's expectations for a Fed rate cut.

On Thursday, August 1, Eastern Time, the pricing of swap contracts showed that traders had fully digested the expectation of a total of 75 basis points of easing by the Fed this year. This means that they anticipate the Fed will decide to cut rates by 25 basis points at each of the remaining three monetary policy meetings this year.

The Federal Reserve's monetary policy meeting, which concluded on Wednesday, announced that it would continue to keep interest rates unchanged, but the resolution statement made a significant shift, no longer stating "remaining highly attentive to inflation risks," but instead focusing on the risks facing the dual mandate of employment and inflation, which is seen as paving the way for future rate cuts. After the meeting, Chairman Powell said at a press conference that a rate cut could be an option at the September monetary policy meeting, if the overall situation of the data and the evolution of the risk balance give the Fed more confidence in the decline of inflation, and the labor market remains strong, the rate cut could come as early as September. The general view of the Federal Open Market Committee (FOMC) is that the current situation is approaching a suitable time for a rate cut, but it has not fully reached that point.

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Subsequently, on Thursday, the number of initial jobless claims in the United States for the previous week exceeded expectations, rising to 249,000, a new high in a year, increasing signs of a cooling labor market. On the same day, the US July ISM manufacturing index, contrary to economists' expectations, did not rebound but fell to 46.8, a new low since November last year, indicating that the contraction of manufacturing business activities was the largest in eight months, further showing weakness.

After the data was released, investors increased their bets on a Fed rate cut this year. US Treasury prices continued to rise after recording the largest monthly increase this year in July, with yields further falling. After the ISM data was announced in the early morning of the US stock market, the yield on the benchmark ten-year US Treasury note fell below 4.0% for the first time since February, and the yield on the more rate-sensitive two-year US Treasury note fell below 4.20%, also a new low in about half a year.

Gregory Faranello, head of US interest rate trading and strategy at AmeriVet Securities, commented that the expectation of three rate cuts does feel a bit excessive, but after Powell's speech laid the foundation, there is a big gap between now and the next Fed meeting on September 18, and any weak data during this period will intensify the current price trend. He expects that the number of people betting on a 50 basis point rate cut in September may increase.

Ian Lyngen, head of US interest rate strategy at BMO Capital Markets, said that market pricing reflects increasing investor concern that, as economic negatives continue to intensify, the Fed may need to act faster than a 25 basis point rate cut every quarter. Unless employment numbers decrease or core CPI falls, the "possibility of a 50 basis point rate cut in September is very small."

There are also comments that, ahead of the release of the important July non-farm employment report on Friday this week, the US Treasury market has already seen a crowded bullish position due to investors' significant easing cycle expectations. Therefore, if the employment report data is strong, investors will reduce their bullish bets, which may stimulate a rise in interest rates.