The Fed's interest rate cut policy has always been the focus of the global economy. Some people think that this is a means by the United States to reap global wealth; others say that interest rate cuts mean the beginning of a recession in the United States, and the global economy will also be affected. But things are far from that simple. The motivations and impacts behind interest rate cuts are far more complicated than what is seen on the surface.

1️⃣ The basic logic of interest rate cuts

As the name suggests, interest rate cuts are to lower interest rates. It is cheaper for companies to borrow money, and the enthusiasm for expanding business and recruiting employees will also increase. This means that there will be more job opportunities in the short term. However, as more money is available in the market, prices will also rise accordingly, because demand has increased and inflation risks are coming.

Employment and interest rate cuts: The cost of corporate financing is reduced, and there are more opportunities to expand production, which will naturally increase employment.

Prices and interest rate cuts: Interest rate cuts increase the amount of funds flowing in the market, and commodity prices may rise due to increased demand, pushing up inflation.

2️⃣ A historical review of the Fed's interest rate cut cycle

By reviewing history, we can see that the Fed's interest rate cuts are often accompanied by economic problems, and each time there are special backgrounds and reasons.

🔸 Oil crisis in the 1970s: The global oil supply was greatly reduced, and the United States fell into severe inflation. Although the Federal Reserve controlled inflation by raising interest rates, the economy declined as a result.

🔸 Savings and loan crisis in the 1990s: The real estate bubble burst, coupled with the outbreak of the Gulf War, the US economy fell into recession, and the Federal Reserve immediately cut interest rates to stimulate economic recovery.

🔸 Internet bubble in 2000: The wave of Internet company closures triggered a stock market crash, and the Federal Reserve quickly cut interest rates to cope with the economic crisis.

🔸 Subprime mortgage crisis in 2008: The global financial system collapsed, and the Federal Reserve lowered interest rates to near zero to stimulate economic recovery. This low interest rate policy lasted until 2015.

3️⃣ The general impact of interest rate cuts

From the historical interest rate cut cycles, there are several common phenomena:

Interest rate cuts are almost always carried out in the context of economic recession. The bond market performed relatively well, and Treasury yields generally fell during the interest rate cut period. Interest rate cuts often lead to a depreciation of the US dollar, but exchange rate fluctuations are also related to the interest rate levels of other countries. Stock and commodity markets fluctuate based on economic fundamentals, and rate cuts don't always mean higher stock markets.