Markets bet the Fed will change policy direction as data weakens and inflation slows

Driven by weak inflation and weak economic data, market expectations for the Fed's 25 basis points cut in September have risen to more than 70%. Overnight index (OIS) pricing and U.S. Treasury yields reflect the growing market bets on policy easing, with the Federal Reserve expected to cut interest rates up to three more times by the end of the year, with interest rates likely to drop below 4%. The shift comes amid amid slowdown in employment growth and a decline in personal consumption expenditure (PCE) inflation, boosting investors' optimism about stocks and bonds.