Hi! I’m Uncle Bird🦜. Many people must have been paying attention to Master Bao’s speech last night. The U.S. Federal Reserve announced that it would lower the target range of the federal funds rate by 50 basis points. This is also the first time in four years that the Federal Reserve has cut interest rates. This is directly related to the future actions of the Federal Reserve and its impact on the economic development of the entire world. Maybe many people, like Psy, are curious about the impact of the Fed's interest rate hikes and cuts on us ordinary people and even the crypto world. Today, Psy will give you a popular science on the logical relationship behind the Fed's interest rate hikes and cuts and their impact on the entire world. Impact on the world, I hope this article can be understood by you, me and even novices in front of the screen. If you think what Uncle Psy said has some truth, one click and three consecutive clicks will be the greatest support.

🔷The Fed’s interest rate hikes and cuts: a double-edged sword for regulating the economy

First of all, we need to clarify a concept: what we call the Fed’s interest rate hike does not mean a direct increase in deposit and lending rates, but an increase in the Fed’s interest rate in the interbank lending market, which is called the federal funds rate.

Raising and lowering interest rates are the two main monetary policy tools that the Federal Reserve System (Fed) uses to influence economic activity and inflation by adjusting the federal funds rate.

🔷Why has the Federal Reserve been raising interest rates over the past few decades?

The main reason why the Federal Reserve has been raising interest rates over the past few decades is to control inflation, stabilize financial markets, coordinate global economic policies, and respond to domestic and foreign economic conditions and inflation levels. At the same time, we must know that the Federal Reserve is not a government agency. It represents financial capital and the power of Wall Street.

Since the 1980s, the Federal Reserve has experienced six interest rate hike cycles, and these cycles have shown significant differences in pace, duration, and intensity of interest rate hikes. Specifically, first of all, the duration of these interest rate hike cycles ranges from 1 to 3 years. The cycle started in 1999 was the shortest, lasting only 12 months; while the cycle started in 2015 was the longest, lasting for 37 months long.

Secondly, in terms of cumulative interest rate hikes, the total interest rate hikes in the six cycles fluctuated between 1.75% and 4.25%. The 1999 interest rate hike cycle was famous for its smallest cumulative rate of 1.75%; in contrast, the 2004 cycle had the largest cumulative rate of hikes, as high as 4.25%.

Furthermore, the average monthly rate hikes also differ significantly from one cycle to another, ranging from 0.06% to 0.23%. The 2015 rate hike cycle stood out for its slow pace, with an average monthly rate hike of only 0.06%, while the 1994 cycle was particularly rapid, with an average monthly rate hike of 0.23%.

Finally, it is worth noting that the first rate hikes in each round of rate hikes are usually mild. The first rate hikes in 1983 and 1987 were only 0.125%, while the first rate hikes in the remaining four rounds were all 0.25%.

When economic growth is overheated and price pressure increases, raising interest rates can curb consumption and investment demand, reduce the money supply, thereby easing inflationary pressure and preventing prices from rising too quickly.

At the same time, in order to avoid excessive economic prosperity or bubbles, the interest rate hike will bring economic growth back to a more sustainable level and reduce the risk of economic fluctuations. Higher interest rates may attract international capital to flow into the United States, increase demand for the US dollar, and thus help maintain the relative strength of the US dollar.

🔷Why is the Federal Reserve now signaling a rate cut?

Mainly because of the influence of the Eastern powers

A series of strategic measures taken by the Eastern superpower in recent years have caused the United States' established plan to repatriate international capital by raising interest rates and issuing U.S. bonds to suffer a severe blow and almost go bankrupt.

While the United States was vigorously implementing a policy of raising interest rates in an attempt to plunder the assets of other countries, the Eastern superpower cleverly adopted a completely different strategy: lending the US dollars it holds to countries in need and agreeing that these countries will repay in the form of RMB.

The result of this ingenious operation was that when these countries finally returned the dollars to the United States, the United States was surprised to find that although its dollar reserves seemed to have increased, its debt burden was actually decreasing because the assets that should have been used to repay the debts had been repaid to the Eastern power by other countries in the form of RMB.

This strategic layout has undoubtedly made the US asset harvesting plan a complete failure. The US originally hoped to restore economic vitality by purchasing assets from other countries at low prices, but now this path has been cleverly blocked by the Eastern superpower. If the US cannot find a new way to make up for its economic loss, then the complete collapse of its economic system may not be far away.

As a result, the Federal Reserve had no choice but to cut interest rates to deal with it.

Lowering interest rates reduces borrowing costs, encourages consumers to increase consumption and companies to expand investment, thereby stimulating economic activity and promoting employment growth. At the same time, for individuals, companies and governments with large amounts of debt, lowering interest rates can reduce their interest expense burden and ease debt pressure.

Lowering interest rates reduces bank loan costs, encouraging businesses and individuals to increase loans and consumption. Lower interest rates reduce the attractiveness of savings, prompting more funds to flow into investment markets such as the stock market and bond market.

Of course, it is inevitable that interest rate cuts will lead to a depreciation of the US dollar and increase the competitiveness of US exports, but in today's global economy, it may also increase the cost of imported goods.

The Fed's interest rate hikes and cuts are important means for the central bank to regulate the economy. Interest rate hikes are usually used when economic growth is too fast and inflationary pressure is high, aiming to curb consumption and investment demand and stabilize prices; while interest rate cuts are used when economic growth is slow, deflation or economic recession occurs, aiming to stimulate economic activities and promote employment growth. These two policy tools regulate economic operations by affecting money supply, borrowing costs and other aspects.

🔷How does the Fed’s interest rate cut affect virtual currency?

The impact of the Fed’s interest rate cut on the virtual currency sector is a complex and multi-dimensional issue, which is deeply affected by the interweaving of multiple factors such as the macroeconomic environment, market sentiment fluctuations, changes in policy expectations, and technological innovation.

The double-edged sword effect of market sentiment: interest rate cuts are often interpreted by the market as a signal of loose monetary policy, which may attract funds to flow into the high-risk, high-return virtual currency field. However, interest rate cuts may also be seen as a response to the uncertainty of the economic outlook, causing market concerns.

Immediate and direct market reaction: The announcement of interest rate cuts often triggers price fluctuations and increases in implied volatility in the virtual currency market, showing the market's sensitivity to interest rate cut news.

Far-reaching long-term impact: The interest rate cut may prompt more institutional and retail investors to enter the virtual currency market in search of higher returns. At the same time, if the interest rate cut is seen as the beginning of a series of easing policies, it may be a positive signal for investors who are optimistic about virtual currencies in the long term.

The delicate balance between market analysis and expectations: Market expectations for interest rate cuts and subsequent policies vary significantly, increasing market uncertainty. At the same time, the cryptocurrency market serves as an amplifier of sentiment and reacts violently to fine-tuning of macroeconomic policies.

Timely adjustment of investment strategies: In anticipation of interest rate cuts, investors need to adopt more prudent risk management strategies, including setting reasonable stop-loss and take-profit points to cope with high market volatility.

As an important means of regulating the economy, the Fed's interest rate hikes and cuts have a profound impact on economic activities and inflation. At the same time, the impact of the Fed's interest rate cuts on the virtual currency market is also complex and multi-dimensional. We need to be keen to capture opportunities and properly guard against risks in this complex and changing environment.

🔷The Federal Reserve has started to cut interest rates. How will it affect ordinary people?

The Fed’s interest rate cut has a multi-faceted impact on ordinary people, involving savings, consumption, investment and other areas.

🔸Impact on savings

Reduced deposit interest: The Fed's interest rate cuts usually prompt domestic central banks to take corresponding interest rate cuts. Bank deposit rates fall, and the interest income that ordinary people get from depositing money in banks will decrease. This means that depositors' actual returns will decrease, and the attractiveness of savings may decrease.

🔸Impact on consumption

The willingness to consume may increase: interest rate cuts may lead to increased liquidity in the market, more relaxed bank lending, and lower costs for people to obtain loans. For example, the interest expenses on mortgages and car loans will be reduced, which will stimulate people's desire to consume to a certain extent and make people more willing to make large purchases, thus helping to boost domestic demand and promote the prosperity of the consumer market.

🔸Impact on investment

Fluctuation of financial returns: interest rate cuts will affect the returns of various financial products. The returns of some financial products linked to interest rates, such as some bank fixed-income products, may decline accordingly. The returns of money market funds may also decline due to the loosening of market funds. However, for equity investment products such as stock funds, interest rate cuts may bring certain benefits, because the cost of funds will decrease, the financing environment of enterprises will improve, and profit expectations may increase, which will in turn drive the stock market up and increase the returns of related funds. However, the performance of the stock market is affected by a variety of factors and there is a certain degree of uncertainty.

Impact on the real estate market: The Fed's interest rate cut may have a certain impact on the domestic real estate market. Some funds may flow into the real estate sector, pushing up housing prices, especially those in the core areas of first- and second-tier cities. For those who own houses, the appreciation of real estate will bring wealth effects; but for those who have not yet bought a house, the cost of buying a house may increase, and it may be more difficult to buy a house.

Gold and other precious metals: When the global economy is unstable or expectations of interest rate cuts are strong, gold and other precious metals are usually regarded as safe-haven assets, and their prices may rise. This is because investors will increase their demand for gold in order to hedge risks and preserve and increase value. However, the fluctuation of gold prices is also affected by many factors such as the international political situation and the trend of the US dollar.

🔸Impact on exchange rates and international trade

Exchange rate changes: The Fed's interest rate cuts usually lead to a depreciation of the US dollar, while the RMB may appreciate in relative terms. This change will directly affect China's export industry, because the appreciation of the RMB will increase the price of Chinese goods in the international market, which may reduce the competitiveness of export goods. But at the same time, this will also reduce China's burden of foreign debt, because foreign debt is denominated in foreign currency, and the appreciation of the RMB means a reduction in the cost of repaying foreign debt.

Impact on international trade: RMB appreciation reduces China's import costs, which is beneficial to companies that rely on imported raw materials and commodities. However, export-oriented companies may face greater market competition pressure.

🔸Impact on daily life

Cost of living may change: The economic stimulus brought by the interest rate cut may lead to a moderate increase in prices. The reduction of production costs, expansion of investment, and increase in production and service supply may drive up the overall price level. The prices of daily necessities and food may rise, and the cost of living will increase. On the other hand, for imported goods, since the RMB may appreciate relatively due to the US dollar interest rate cut, its import price may fall, thereby reducing domestic sales prices and reducing the cost of consumers to buy imported goods.

🔸Other Impacts

Employment market: The Fed's interest rate cut has a certain driving effect on the global economy, and China's foreign trade export companies may benefit from it. The increase in export orders and the expansion of corporate production will create more jobs, which provides more employment options and opportunities for ordinary people.

The Fed's interest rate cut has many impacts on ordinary people, including direct impacts such as reduced savings income and increased willingness to consume, as well as indirect impacts such as fluctuations in financial management income, changes in the real estate market, exchange rates and international trade. Therefore, in the face of such economic changes, ordinary people should think rationally and make reasonable financial decisions based on their actual situation.