Let's first talk about the most important thing to watch today, the Fed's interest rate cut. The market has been looking forward to this rate cut for two years. Two or three months ago, the US economic data turned bad and it became extremely certain. It will finally land tonight.
There is no doubt in the market about the interest rate cut, but there are still differences in the extent of the cut. The probability of a 50 basis point cut is 64%, and the probability of a 25 basis point cut is 36%.
If the interest rate is cut by 25 basis points, it will only be a small positive for the cryptocurrency market. After all, it has been preheated for two months, and the expectation of a rate cut has long been priced in the stock price. If the interest rate is cut by 50 basis points, it will be considered to be beyond expectations and absolutely positive. After all, the domestic market has basically not considered that the Federal Reserve will cut interest rates by 50 basis points.
However, based on the Fed’s past behavior, the most likely scenario is a 25 basis point rate cut this time.
There are several reasons for this:
1. The Federal Reserve likes to manage expectations, which means that it may not necessarily come up with a policy, but by releasing the expectation of this policy, the market will naturally move in the direction expected by the policy.
In the past two months, officials from the Federal Reserve have released many signals of interest rate cuts on different occasions. Although there was no interest rate cut in the past two months, the yield on 10-year U.S. Treasury bonds has dropped, and the effect of monetary easing has already been apparent.
2. The fundamental reason for the Fed’s interest rate cut this time is that the economic data is not good. So when the Fed said it would cut interest rates, the U.S. stock market actually saw an adjustment. If the interest rate is really cut significantly, it will make the market feel that the U.S. economy is really bad, and the expectation of a worsening U.S. economy will escalate, becoming a self-fulfilling expectation.
3. Now is not the time of the epidemic when the US economy suddenly "fuse-broken". Now it is just that the economic data has deteriorated, not an instant recession, so there is no need to cut interest rates sharply. Divide the 50 basis point interest rate cut into two times, which becomes two positives. If the interest rate is really cut by 50 basis points, it will be too much at one time, and the market's expectations for subsequent interest rate cuts will be reduced, which will in turn weaken the market's expectations for the future.
This time the interest rate was cut by 25 basis points, and Powell continued to speak after the rate cut. Our Federal Reserve will continue to stimulate the economy and continue to cut interest rates. Another good thing about the speech may turn into three times.
Dongda: You are right, a good thing can turn into two, and thinking should keep pace with the times.
Of course, nothing is certain before the final announcement. I suggest that you watch the news tomorrow morning. If the Fed really cuts interest rates by 50 basis points, you may be able to follow the trend and rise.