Citi(US:C) Hua Er Jie Jian Wen·2025-09-11 08:30Core Viewpoint - The Federal Reserve is expected to announce its first interest rate cut of the year during the upcoming monetary policy meeting, indicating a shift towards a dovish stance in response to economic risks [1][3]. Group 1: Federal Reserve's Dovish Stance - Citi's analysis indicates that the current market pricing of the terminal interest rate is below levels suggested by inflation and growth indicators, reflecting a clear dovish policy stance from the Federal Reserve [1][2]. - The constructed Federal Reserve policy stance indicator is currently at a low level, suggesting that the market's pricing is "overly accommodative" relative to the fundamentals [2][3]. Group 2: Economic Risks and Labor Market - The dovish stance is based on concerns regarding future economic risks, particularly signs of weakness in the labor market, including rising unemployment rates and longer durations of unemployment [3]. Group 3: Gold and Risk Assets Correlation - In a policy-driven "fiscal dominance" environment, the correlation between gold and risk assets (such as the S&P 500 and Nikkei indices) is expected to become more positive than currently priced in by the market [5]. - There is a significant deviation between the implied correlation of gold and risk assets in the options market and the historical realized correlation during similar dovish environments, indicating that the market has not fully absorbed this shift [5]. Group 4: Gold as a Hedge - Gold is often misperceived as a traditional safe-haven asset; however, its relationship with bond yields is structurally unstable, which undermines its role as a pure hedge [7]. - In the current context of the Federal Reserve's accommodative stance to address potential economic risks, gold's properties make it likely to perform well, supporting the rationale for a "gold up + stocks up" combination [7].