Fed meeting minutes: Option pricing suggests one to two rate cuts this year

On May 29, the Federal Reserve meeting minutes indicated that the benchmark policy path implied by option prices (representing market mainstream expectations) slightly decreased during this period, suggesting potential rate cuts of 1 to 2 times (25 basis points each) by the end of the year - only slightly more than the expectation at the March FOMC meeting. The probability distribution of year-end interest rates implied by options shifted leftward, with downside risks significantly increasing. As the market perceives heightened risks of policy rate decline, the implied policy path in futures markets shows a larger downward adjustment, indicating potential rate cuts of around 3 times before year-end. Meanwhile, the median benchmark rate path in market expectation surveys remains relatively unchanged, still suggesting 2 to 3 rate cuts this year. However, the survey noted that the divergence among respondents regarding the most likely policy path is expanding. (Jinshi)