Last night, the Federal Reserve suddenly made a big move, unexpectedly directly cutting interest rates by 50 basis points! Many friends may not realize what this means. In the past 35 years, the Federal Reserve has only cut interest rates by 50 basis points three times when it first cut interest rates, namely the bursting of the Internet bubble in 2000, the subprime mortgage crisis in 2007, and the new crown crisis in 2020. Seeing these time points, everyone should have understood that these all mean major crises.
So what about this time? The US economy has only slowed down slightly, and inflation has just fallen back, and the Federal Reserve has offered such a large interest rate cut. The reasons behind this are nothing more than the following three possibilities:
1. There is a major crisis.
But usually interest rates are cut after the crisis breaks out. How can there be a "preventive" 50 basis point cut when nothing happens?
2. Assist Harris.
This is not impossible. Trump warned before that interest rate cuts must wait until after November, otherwise there will be suspicion of secretly helping the ruling party. This time, the Federal Reserve has clearly stood in line.
3. Loose money is coming.
Although Powell is still trying to make up for it verbally, saying that the interest rate cut may be suspended in the future, the market has obviously already believed that this is the beginning of a major shift in monetary policy.
Next, it depends on whether we follow it or not. The market reacted flatly to the positive news last night, and many assets fell slightly, but the amplitude was not large. For example, the Nasdaq fell slightly last night, but it rose again in early trading today, and there was no big change.
The only "abnormal movement" is the US Treasury TLT, which fell by 1%, which is already a relatively large drop. In the short term, various varieties may fluctuate due to the release of positive news. But in the long run, the Federal Reserve has officially entered the "loose money" cycle, and the future asset growth will be quite optimistic. I hope that Dongda (East Asia) can also seize this opportunity, keep up with the global pace, start monetary easing, drive the stock market out of the bull market, thereby stimulating the economy and boosting consumption.
