U.S. equity and bond markets rallied after July inflation figures came in broadly as expected, reinforcing expectations that the Federal Reserve will begin lowering interest rates at its 16–17 September meeting. The S&P 500 and Nasdaq Composite both set record closing highs on 12 August, while short-dated Treasury yields fell. Fed funds futures now assign almost a 100% probability to a quarter-percentage-point cut next month, up from roughly 80% before the consumer-price report. Traders have also started to hedge against a larger move, lifting implied odds of a 50-basis-point reduction to about 8% and adding around $2 million in options tied to the Secured Overnight Financing Rate that would profit from such an outcome. The two-year Treasury yield slipped to 3.69% as easing bets intensified. Speculation gained further traction after Treasury Secretary Scott Bessent told Bloomberg Television on 13 August that a 50-basis-point cut would be “appropriate” and that policy rates should eventually be 150–175 basis points lower to counter slowing job growth. UBS continues to expect a conventional 25-basis-point move, but acknowledges that the debate over a larger first step has entered the market calculus. Analysts say the combination of softer labour data revisions and CPI readings slightly above the Fed’s 2% target but below prior fears has given policymakers room to pivot after five straight meetings on hold. Whether officials deliver a standard or outsized cut, investors are increasingly convinced that a new easing cycle is about to begin.