The U.S. Federal Reserve announced that it would lower the target range of the federal funds rate by 50 basis points to a level between 4.75% and 5.00%. This is the first rate cut by the Fed since March 2020, and it also marks a shift from a monetary policy tightening cycle to an easing cycle. At a press conference held after the meeting, Fed Chairman Powell called the 50 basis point rate cut a "powerful action" and said that the Federal Open Market Committee did not think that the rate cut was slow, but rather that it was a timely move.
The interest rate cut has finally landed. What impact will it have on the United States and the world?
On September 18, 2024 local time, the U.S. Federal Reserve announced that it would lower the target range for the federal funds rate by 50 basis points to a level between 4.75% and 5.00%.
The first rate cut after 11 consecutive rate hikes
Before the decision, the market expected a rate cut of between 25 basis points and 50 basis points. It is also worth mentioning that the last time the Fed cut interest rates was in March 2020, which means that the two rate cuts have been four and a half years apart. From March 2022 to July 2023, the Fed raised interest rates 11 times in a row, with a cumulative rate hike of 525 basis points. In the following year, the Fed maintained the target range of the federal funds rate between 5.25% and 5.5%, the highest level in 23 years.
Based on the latest economic outlook, 19 members of the Federal Open Market Committee expect the Fed to cut interest rates further before the end of this year, with nine expecting a 50 basis point cut and seven expecting a 25 basis point cut.
Since the beginning of this year, the drag of high interest rates on the US economy has become increasingly obvious, and market institutions have called for interest rate cuts more and more frequently. However, some analysts pointed out that the pace of the Fed's interest rate cuts is still unclear, and the high borrowing costs caused by high interest rates will continue for some time, continuing to drag down the US's own economic development. At the same time, based on historical experience, the Fed's monetary policy shift has a greater impact on the global economic trend. Once the Fed cuts interest rates, it may have a multi-faceted impact on the world economy.
Looking back at past history, the Fed's interest rate cuts can be divided into "crisis-style interest rate cuts" and "precautionary interest rate cuts". The former refers to the Fed's sharp interest rate cuts and injection of a large amount of liquidity into the market when an economic crisis occurs in the United States, while the latter is due to the limited effect of previous monetary tightening and the lack of economic recession, so the interest rate cut is also limited. The latest data from the Bureau of Economic Analysis of the U.S. Department of Commerce and the U.S. Department of Labor show that the current U.S. economic fundamentals remain strong, the job market remains healthy, and there is no obvious crisis or recession. Therefore, the market regards the upcoming interest rate cut as the latter, with the purpose of hedging the risk of economic downturn in a timely manner.
May increase volatility in U.S. financial markets
Historically, what impact will the Federal Reserve’s interest rate cuts have on the stock market, bond market, and foreign exchange market trends?
Multiple sets of historical statistics show that after the Federal Reserve officially launches the interest rate cut cycle, the performance of U.S. stocks, U.S. bonds and the U.S. dollar may mainly depend on one factor: the health of the U.S. economy.
Historically, whenever the "dollar tide" reaches the interest rate cut stage, the released dollar liquidity often surges like a flood, buying up low-priced high-quality assets in other economies, especially developing economies, around the world. This process is usually accompanied by political turmoil in the relevant regions and countries, as well as tense regional security situations.
The "dollar tide" formed by the Fed's interest rate cuts and rate hikes harvests global wealth and transfers crises. When the Fed cuts interest rates on a large scale, the United States exports capital and plunders other countries by overissuing dollars to import goods and investing in other countries; when the Fed raises interest rates aggressively, global liquidity is rapidly tightened and multiple currencies depreciate sharply. Countries that borrow in dollars face a sudden increase in debt repayment pressure, and many developing countries are trapped in the dilemma of "exchange rate fluctuations-capital outflows-increased financing costs-debt repayment difficulties". #token2049 #加密市场反弹 #美国大选如何影响加密产业？ #BTC #ETH $BTC $ETH $BNB
