Expectation of Fed rate cut seems an over-reaction, so reality may be different

Herd instinct is the human nature to follow the crowd and act collectively - and market expectation always does not change smoothly but tends to over-react to new information. The current market expectation of the US Federal Reserve's rate cuts is a case in point.

On June 20, the latest meeting of the Fed's policy-setting Federal Open Market Committee shrugged off the market's high expectation of rate cuts and gave no clear policy signal confirming a cut.

We believe the market had overreacted in forming its expectation of rate cuts after the Fed swiftly adopted a dovish tone from the end of last year. Specifically, we believe market expectation - it has formed since May - of a change in policy stance, as well as the timing and degree of rate cuts, may not fully materialize.