On Wednesday, Citadel Securities stated that a robust U.S. economy and persistent inflation will prompt the Federal Reserve to cut interest rates only once more for the remainder of the year, totaling a reduction of 25 basis points.

Michael de Pass, Global Head of Interest Rate Trading at Citadel Securities, said:

"In our view, given the current state of the U.S. economy and the stickiness of inflation, the market's expectations for rate cuts may be a bit too high. While the market anticipates approximately 50 basis points of rate cuts for the year, I would venture to say that the Fed will only cut rates by 25 basis points for the rest of the year."

This forecast is lower than the market's current general expectations. Following the release of the strong September non-farm payrolls report in the U.S., Wall Street significantly reduced its rate cut expectations. The market now estimates a 0% chance of a 50 basis point rate cut by the Fed in November, with a total reduction of about 47 basis points expected by the end of 2024, significantly lower than the 75 basis points anticipated before the release of the payrolls report. De Pass stated that this adjustment is reasonable but still too aggressive.

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This week, speeches by Federal Reserve officials have also cooled market expectations.

The "third in command" of the Fed, New York Fed President John Williams, said on Tuesday that the U.S. economy is ready for a "soft landing" and supports a 25 basis point rate cut in November. For the year 2025, St. Louis Fed President James Bullard, a voting member, said the same day that the cost of being too loose, too quickly, is higher than the cost of being late, and a gradual approach to rate cuts would be appropriate.

For the year 2026, Dallas Fed President Lorie Logan, a voting member, stated on Wednesday that following the 50 basis point rate cut in September, the Fed should slow the pace of rate cuts.

He said that if economic data remains consistent, there might be two more rate cuts this year, each by 25 basis points.

The next inflation touchstone will be the CPI inflation data released on Thursday and the PPI inflation data on Friday.

The market expects a slight month-on-month increase of 0.1% in September CPI, the lowest increase in three months, with a year-on-year increase of 2.3%, marking the sixth consecutive month of deceleration and the most moderate growth since early 2021. The core CPI data, which excludes the volatility of food and energy prices, is expected to rise by 0.2% month-on-month and by 3.2% year-on-year.De Pass stated on Wednesday at the Castle Securities Global Macro Conference:

"\[This indicates that inflation is still far above the target, and the Federal Reserve needs to fulfill its dual mandate. Previously, we saw a fairly strong employment report, and now people's attention has turned back to inflation again. We must be concerned that inflation may not be able to reach the target.\]"

De Pass also mentioned that if the Federal Reserve really cuts interest rates by only 25 basis points as we predict, market participants can look for short-term trading opportunities based on the Fed's possible rate cuts, because such policy changes usually have a more direct impact on short-term interest rates.

With the readjustment of the Federal Reserve's interest rate cut prospects, bond market volatility has risen sharply.

After the September non-farm report lowered expectations for interest rate cuts, the two-year and 10-year U.S. Treasury yields once stood at 4%. At the same time, futures position indicators show that more traders are betting on U.S. Treasury losses. The ICE BofA MOVE index soared to its highest level since January on Monday.

The rise in the MOVE index indicates that investors expect future bond yields to fluctuate significantly, which is usually a reflection of market uncertainty about future interest rate paths. De Pass also predicted that the volatility of U.S. Treasury yields will continue to accelerate, and he said:

"\[The economy is at a turning point, and there are many conflicting forces in the market (for example, some factors may promote economic growth, while others may lead to economic slowdown). I believe that the uncertainty and volatility in the market will increase in the future, providing opportunities for investors to trade.\]"