Breaking news at dawn! The Federal Reserve cuts rates by 25 basis points, and Chinese assets explode.
Economic Report of the 21st Century, 2024/11/08 04:28 Local time, on November 7, the U.S. Federal Reserve announced a 25 basis point reduction in the federal funds rate target range, lowering it to a level between 4.5% and 4.75%.
This is the second rate cut by the Federal Reserve this year, following a 50 basis point cut in September, marking a 'back-to-back' reduction. This is also the second rate cut since March 2020, signifying that U.S. monetary policy has entered a period of easing. The Federal Reserve FOMC statement indicates that the risks to the target are still 'roughly balanced,' and the labor market situation has 'generally eased'; maintaining the balance sheet reduction at the same scale.
Indicators show that economic activity continues to grow steadily. Since earlier this year, the labor market situation has generally eased, with a slight increase in the unemployment rate, but it remains low.
The inflation rate is moving towards the 2% target, but still slightly rising. The Federal Reserve states that the risks of achieving employment and inflation targets are roughly balanced. When considering further adjustments to the federal funds rate target range, the committee will carefully assess subsequent data, the evolving outlook, and risk balance.
Overall, there is little change in the wording of the statement, but the latest statement does not mention 'having more confidence that inflation is sustainably moving towards the target.'
Chinese assets have strongly boosted the three major U.S. stock indices, with the Dow Jones performing relatively weakly, while the Nasdaq and S&P 500 indices continue their strength. Oil prices surged. Gold and silver rebounded across the board. Due to the impact of the rate cut, the dollar index fell, and in terms of Chinese assets, the renminbi has continued to rise sharply.
FTSE China A50 Index futures also surged strongly.
In terms of Chinese concept stocks, the Nasdaq China Golden Dragon Index rose by 4%. Where is the end of the rate cut cycle? According to the CME FedWatch Tool, traders have lowered their expectations for Fed rate cuts in 2025.
Currently, traders expect that the Federal Reserve may stop cutting rates after two more cuts in the first half of 2025, lowering the benchmark rate to 3.75%-4%.
Bill English, former head of monetary affairs at the Federal Reserve and currently a finance professor at Yale School of Management, believes the key question is when the rate cut cycle will end.
The Federal Reserve will soon have to consider how the rate cut cycle will change under relatively strong economic performance. The Federal Reserve may choose to pause rate cuts early to observe the developments.
Previously, Trump won a resounding victory in the U.S. elections, and the Republican Party gained control of the Senate, raising speculation about whether the Federal Reserve would continue to cut rates at a slower and smaller pace. Regarding the independence of the Federal Reserve, Trump has stated that the president should have a 'voice' in the central bank's interest rate policy, but he believes that the president should not have the power to order the Federal Reserve what to do.
The UK and Sweden had previously announced interest rate cuts. In fact, before the Federal Reserve's rate cut, some countries had already started taking action. On the evening of November 7, Beijing time, just hours before the Federal Reserve's interest rate decision was announced, the Bank of England announced a 25 basis point cut, lowering the benchmark interest rate from 5% to 4.75%, in line with market expectations. This is the second rate cut by the Bank of England this year.
Bank of England Governor Bailey stated, 'We need to ensure that inflation is close to target levels, so we cannot cut rates too quickly or too much. However, if the evolution of the economy aligns with our expectations, rates may continue to gradually decline from here.' On the same evening, the Swedish central bank lowered the benchmark interest rate to 2.75% and indicated that further cuts may occur in December and the first half of 2025. This is the first time in a decade that the Swedish central bank has cut rates by 50 basis points to accelerate support for a stagnant economy, and it has committed to taking more measures in the future.
Source: 21 Data News Laboratory, CCTV News, Shanghai Securities Journal, Securities Times, Wind