The market is generally focused on the Federal Reserve potentially cutting rates by 25 basis points in September, but this is not the end, rather the beginning of an unexpected monetary easing. The current mainstream view suggests that the Fed will implement small, gradual rate cuts, while a Morgan Stanley report indicates that the September rate cut marks the starting point of an easing cycle over the next 12 months, with six cuts expected starting in the fourth quarter of 2025, far exceeding the market's reflected expectation of only three cuts, and under a mild recession, the federal funds rate could drop to 2.25%, falling below the previous long-term bottom of 2.5%. If the unemployment rate exceeds 4.5% (currently at 4.1%), the magnitude of rate cuts could also increase, a risk that the market is overlooking.

Behind the Fed's aggressive rate cuts are three main drivers: first, a 23% reduction in the U.S. Treasury's bond issuance in 2025; if rates are not cut, it could push up corporate financing costs, potentially triggering a spontaneous recession, and could also lead to a surge in the dollar by 7%; second, $3.2 trillion in corporate debt maturing in 2026-2027, with current BBB-rated bond yields at 6.4%, insufficient rate cuts could increase high-yield bond default rates from 2.1% to 8.5%.

In light of this trend, the risk boundaries for interest rate-sensitive assets are changing, long-term government bonds may lose their safe-haven properties, and money market fund yields could drop from 4.8% to 2.3% within 12 months. The real opportunity lies in companies with stable cash flows, such as utilities and healthcare, as these companies can reduce debt costs while maintaining demand rigidity.

The market should not blindly trust the Fed's dot plot and forward guidance, and the Fed's focus has shifted from inflation to employment, as full employment is crucial for social stability. While the market debates whether to cut rates in September, it should also consider the key factors that determine the extent of monetary easing.