The Fed's interest rate cut policy is combined with the balance sheet reduction action
Reflecting a complex liquidity management strategy, rather than the traditional "flooding".
The following is an analysis of the impact after the interest rate cut:
1. Inflation management and economic balance
The Fed expressed confidence that inflation could be kept below 2%. The interest rate cut is intended to stimulate economic activity, but its core goal is still to balance inflation and economic growth. In the short term, interest rate cuts may increase market liquidity and boost investment and consumption, but the Fed maintains strict monitoring of inflation to prevent it from rising too quickly.
2. Balance sheet reduction and liquidity management
The balance sheet reduction strategy maintains market liquidity by extending Treasury bonds and reinvesting MBS and agency bonds. The monthly extension of more than $25 billion in Treasury bonds and the reinvestment of MBS and agency bonds prevent a significant reduction in liquidity. This is a neutral operation that ensures that the market funding level remains unchanged rather than increasing market liquidity.
3. Market and investment sentiment
Interest rate cuts usually help reduce borrowing costs and boost investor sentiment, but due to the balance sheet reduction operation, the Fed's liquidity management remains conservative, and there will be no large-scale influx of funds in the market. This will make investors cautious in the short term and avoid excessive risk-taking.
4. Economic and employment uncertainty
The Fed pointed out the uncertainty of the economy and employment and said it would continue to observe subsequent data. This means that future policies may be further adjusted, depending on economic performance.
Summary:
The Fed balances economic growth and inflation by lowering interest rates, while shrinking the balance sheet to maintain liquidity stability. This strategy avoids excessive release of funds and keeps market sentiment relatively cautious. Future policies may be further adjusted based on economic data.
