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 are curious about the impact of the Fed's interest rate hikes and cuts on us ordinary people and even the crypto world. Today I will give you some popular science about the logical relationship behind the Fed's hikes and cuts in interest rates and their impact on the entire world. I hope this article The article can be understood by you, me and even novices in front of the screen. If you think there is some truth to what is said, one click and three consecutive clicks are the greatest support.
The Fed's interest rate hikes and rate cuts: a double-edged sword for regulating the economy First of all, we need to clarify a concept: the so-called Fed's interest rate hikes do not directly increase deposit and loan rates, but increase the Fed's interest rate in the interbank lending market, known as the federal funds rate. Interest rate hikes and rate cuts are the two main monetary policy tools used by the Federal Reserve System (Federal Reserve System, referred to as the Fed) to influence economic activities and inflation by adjusting the federal funds rate.
Why has the Federal Reserve continued to raise interest rates over the past few decades?
The main reasons why the Federal Reserve has been raising interest rates over the past few decades are to control inflation, stabilize financial markets, coordinate global economic policies, and respond to economic conditions and inflation levels at home and abroad. 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 behind it. 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 amount of 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, looking at the average monthly interest rate hikes, the differences between cycles are equally obvious, ranging from 0.06% to 0.23%. The 2015 interest rate hike cycle stood out for its slow pace, with an average monthly interest rate hike of only 0.06%; while the 1994 cycle was particularly rapid, with an average monthly interest rate hike of 0.23%. Finally, it is worth noting that the first rate hike in each interest rate hike cycle is usually moderate. Among them, the first interest rate hikes in 1983 and 1987 were only 0.125%, while the other four first interest rate hikes were all 0.25%.
When economic growth is overheated and price pressure increases, raising interest rates can curb consumption and investment demand, reduce money supply, and thus ease inflationary pressure and prevent prices from rising too quickly. At the same time, in order to avoid excessive economic prosperity or bubbles, raising interest rates can help economic growth return 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 dollar, and thus help maintain the dollar's relative strength.
Why is the Federal Reserve now signaling a rate cut?
The main reason is the influence of the Eastern Power. In recent years, a series of strategic measures taken by the Eastern Power have caused the United States' established plan to raise interest rates and issue US bonds to bring back international capital, which has suffered a heavy blow and is close to bankruptcy. While the United States has been implementing a policy of raising interest rates in an attempt to plunder assets from other countries, the Eastern Power has 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 is that when these countries finally return the US dollars to the United States, the United States is surprised to find that although its US dollar reserves seem to have increased, its debt burden is actually being reduced, because the assets that should have been used to repay the debt have been repaid to the Eastern Power in the form of RMB by other countries.
Such strategic layout undoubtedly makes the US asset harvesting plan a complete failure. The United States 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 power. If the United States cannot find new ways to make up for its economic loss, then the complete collapse of its economic system may really be not far away. Therefore, the Federal Reserve has no choice but to cut interest rates to deal with it. Cutting interest rates reduces borrowing costs, encourages consumers to increase consumption and companies to expand investment, thereby stimulating economic activities and promoting employment growth. At the same time, for individuals, companies and governments with a large amount of debt, cutting interest rates can reduce their interest expenditure burden and alleviate debt pressure. Cutting interest rates reduces the cost of bank loans and encourages companies and individuals to increase loans and consumption. Lower interest rates will reduce the attractiveness of savings and encourage more funds to flow to investment markets such as the stock market and bond market. Of course, it is inevitable that cutting interest rates will inevitably lead to a depreciation of the US dollar and increase the competitiveness of US export goods, 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 will the Fed’s interest rate cut affect virtual currencies?
The impact of the Fed's rate cut on the virtual currency sector is a complex and multi-dimensional issue, which is deeply affected by the macroeconomic environment, market sentiment fluctuations, policy expectations and technological innovation. The double-edged sword effect of market sentiment: rate cuts are often interpreted by the market as a signal of monetary policy easing, which may attract funds to the high-risk, high-return virtual currency sector. However, rate cuts may also be seen as a response to the uncertainty of the economic outlook, causing market concerns. The immediate and direct reaction of the market: the announcement of rate cuts often triggers price fluctuations and an increase in implied volatility in the virtual currency market, showing the market's sensitivity to rate cut news.
Profound long-term impact:
Interest rate cuts 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 constitute 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 stop-profit points, to cope with high market volatility. As an important means of regulating the economy, the Federal Reserve's interest rate increases and decreases have a profound impact on economic activities and inflation. At the same time, the impact of the Federal Reserve's interest rate cuts on the virtual currency market is complex and multidimensional. We need to keenly seize opportunities and properly prevent risks in this complex and ever-changing environment.
How will the Fed's interest rate cuts affect ordinary people? The Fed's interest rate cuts have many impacts 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 decline.
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 decrease 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 combination of factors and there is a certain degree of uncertainty. Impact on the real estate market: The interest rate cut by the Federal Reserve 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 housing prices 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 houses, the cost of buying houses may increase and the difficulty of buying houses may increase. Precious metals such as gold: When the global economy is unstable or expectations of interest rate cuts are strong, precious metals such as gold 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: The appreciation of the RMB reduces China's import costs, which is beneficial to companies that rely on imported raw materials and goods. However, for export-oriented companies, they may face greater market competition pressure.
Impact on daily life
The 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 corporate production costs, the expansion of investment, and the 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 purchase 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 a multi-faceted impact 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 conditions.
