What are the impacts of the “black swan event” triggered by the Federal Reserve's interest rate cut that we must recognize?

What has transformed the Federal Reserve's decision to cut interest rates by 25 basis points, which was originally expected, into what can be considered the biggest “black swan” event for the financial markets before the end of 2024?

The Federal Reserve announced a 25 basis point reduction in the federal funds rate target range, lowering it to between 4.25% and 4.5%. This marks the third consecutive rate cut this year, following a 50 basis point cut on September 19 and a 25 basis point cut on November 8.

The Federal Reserve voted 11 in favor and 1 against (Harker preferred to keep rates unchanged) to lower the federal benchmark interest rate to between 4.25% and 4.5%!

However, Chairman Powell stated that “the pace of future monetary policy adjustments will slow.” According to new forecasts, there may only be two rate cuts throughout next year. Powell also pointed out that the overall economy is currently “robust,” wages are at a “healthy and sustainable” level, and the economy has “avoided recession.” The current employment rate has not yet reached a concerning level, and the upcoming monetary policy will still look for “economic data and inflation data.” Additionally, regarding tariff issues, he mentioned the need to remain patient and will assess cautiously.

Moreover, Powell stated for the first time at the press conference following the interest rate meeting that the Federal Reserve does not intend to add Bitcoin to its balance sheet.

The Federal Reserve is not allowed to hold Bitcoin. (The Federal Reserve Act) stipulates what we can own, and we have no intention of seeking to amend the law. This is something for Congress to consider, but the Federal Reserve has not sought to make changes.

Next, let's discuss some important impacts following this interest rate meeting.

First, the dollar index rose to its highest level in over two years at 108.26, while the euro and pound fell by 1% that day. Our offshore RMB exchange rate also reached its lowest level in 2023 at 7.32. Furthermore, let's look at the significant drop in the U.S. capital markets; the S&P 500 index experienced its largest single-day drop since 2001 (the day the interest rate decision was made), and the Nasdaq index saw its largest drop in five months. Additionally, the Nasdaq Golden Dragon Index experienced a decline of 2.4%.

A monetary policy meeting that was originally in line with market expectations turned into a potential “stop further rate cuts” signal from the central bank, causing investors to sell off risk assets in large numbers. What should we pay attention to in this regard?

First, although our previous economic work meeting stated that we should adopt a “moderately loose monetary policy,” the signals from the U.S. regarding interest rate cuts have not been as loose, so next year the pressure on our policies will be greater than before. As for whether this “signal” is a response to our economic policy easing, it remains to be seen, but it is clear that the interest rate gap between us and them will further widen.

Second, from their current description, the U.S. economy is still relatively resilient. There are no signs of economic recession expectations.

Third, the possibility of only two rate cuts next year also serves as further evidence for the entire world, including our upcoming tariffs, which may not be small.

Fourth, the significant drop in U.S. stocks yesterday could potentially have a direct impact on other capital markets for a certain period. Lastly, the offshore RMB exchange rate has now reached a phase low, adding further pressure to our capital markets under these circumstances.

For the cryptocurrency market, although the later interest rate cut predictions are currently affecting prices, the correlation between Bitcoin and major stock indices has decreased, so it may not have long-term effects.

“The expectation that the pace of rate cuts will slow in 2025 is not entirely surprising, but it has put some pressure on risk assets, including cryptocurrencies. Although macro factors traditionally influence the price trends of cryptocurrencies, specific industry factors may dominate in the coming weeks and months, especially when the market anticipates policy changes from the incoming government.”

The recent drop in Bitcoin hasn't been significant. It's just that many altcoins have been hit hard! Many altcoins have nearly halved! You can say they are cutting rates, but then they come out with statements about a strong economy and plans to slow down rate cuts in 2025! It's really like a stubborn duck!

After this round of Bitcoin's pullback, many altcoins have dropped significantly! In the future, altcoins with low trading volumes won't drop much either; spot positions can be gradually built. You can enter the market in layers during the downturn!