[Deep Dive] Rising US Rate Cut Hopes and Market Impact

Why Are US Rate Cuts in the Spotlight Again?

As of July 23, 2026, global financial markets are once again highly focused on the potential for US rate cuts. Under Fed Chair Kevin Warsh, the Federal Reserve has emphasized a data-dependent approach. Recently, dovish remarks from several Fed officials suggesting that inflation may have passed its peak have rapidly improved investor sentiment.

Currently, the US benchmark interest rate remains in the 3.50% to 3.75% range. Ahead of the upcoming FOMC meeting on July 28-29, swap markets are pricing in a high probability (over 70%) of a rate hold. However, expectations for an end to the tightening cycle and a subsequent pivot to rate cuts are being priced into the market, driving an overall rally in equities.

Improving Market Sentiment and Sector Reactions

Expectations for a softening of the Fed's hawkish stance have led to an immediate market rebound. Buying momentum is particularly evident in technology and growth stocks, which are sensitive to interest rate changes.

• Rebound in Tech and Growth Stocks: Anticipation of lower borrowing costs is leading a strong rally in the tech sector, which previously faced valuation pressures.

Focus on Defensive Stocks and Precious Metals: To hedge against policy uncertainty, funds are also flowing into dividend growth stocks and precious metals like gold, highlighting portfolio diversification.

Persistent Market Volatility: Torn between relief over potentially accommodative monetary policy and lingering fears of reigniting inflation, the market is expected to exhibit high volatility depending on the outcomes of upcoming economic data releases.

Future Outlook and Investment Strategy

Experts view the outcome of the July FOMC meeting as a crucial watershed moment that will determine the direction of global stock markets in the second half of the year. With the Fed abandoning forward guidance and adopting a strictly 'data-dependent' stance, upcoming CPI, PCE, and employment data are more critical than ever.

Rather than prematurely betting on aggressive rate cuts, investors should maintain a prudent approach, focusing on companies with high earnings visibility and strong cash flows, while closely monitoring key economic indicators.