A big gift from the Federal Reserve, surprising or not?

The Federal Reserve's interest rate cut actions have attracted much attention. Since the first rate cut this year, it has cumulatively reduced by 100 basis points, with rates dropping from 5.25% - 5.5% to 4.25% - 4.5%, and is steadily moving towards the expected median of 3% - 4%. However, after a recent overnight rate cut of 25 basis points, the median of the dot plot unexpectedly rose to 3.9%. This means that at the current pace, there may only be a maximum of 2 more cuts of 25 basis points. Following this news, market expectations plummeted, leading to a sharp crash in US stocks and Bitcoin, and the RMB exchange rate was also affected.

In fact, the Federal Reserve's move can be seen as a two-pronged approach. On one hand, it continues to progress towards the set interest rate target; on the other hand, it uses the dot plot as a tool to influence market expectations and prevent the market from prematurely securing profits. It should be clarified that the dot plot is merely one of many tools used by the Federal Reserve, based on individual predictions by officials, which is subjective and not a precise forecast of future rates, nor should it be the sole basis for investment decisions.

Some believe that this 'big gift' from the Federal Reserve may be intended to support the soon-to-be 'crowned' Trump. Trump advocates for a loose monetary policy and plans to implement a series of measures once in office, such as domestic tax cuts, external tax increases, layoffs, boosting employment rates, controlling inflation, creating a strong dollar, and supporting the cryptocurrency industry, among which some goals conflict with each other. The Federal Reserve's operations have provided ample space for policy adjustments, increasing his policy flexibility.

Overall, the current market downturn may be a short-term fluctuation, and it is expected to form a 'golden pit' in the future. It is anticipated that the real interest rate will not remain at 3.9% by 2025, and the median of the dot plot is likely to decline again after the first quarter of next year. For investors, those who regularly invest and hold cash waiting for additional purchases may reap significant rewards in this process, akin to receiving a special 'big gift' from the Federal Reserve alongside Trump.

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