Editor | Wu Talks about Blockchain
At 2 a.m. on September 19, the Fed announced a 50bps rate cut, with the interest rate decision (upper limit) at 5%, the expected 5.25%, and the previous value of 5.50%, the first rate cut since March 2020. 11 of the 12 voting committee members voted in favor, and Fed Governor Miki Bowman voted against the action, preferring to lower the federal funds rate target range by 25 basis points at this meeting. This is also the first time since 2005 that a *board member* has expressed dissent.
The full text of the FOMC statement released by the Federal Reserve is as follows:
Recent indicators suggest that economic activity continues to expand at a solid pace. Job gains have slowed somewhat and the unemployment rate has risen but remains low. Inflation has moved further toward the Committee's 2 percent objective but remains somewhat elevated.
The Committee is committed to achieving maximum employment and inflation at 2 percent over the longer run. The Committee is more confident that inflation is on track to 2 percent and judges that risks to achieving its employment and inflation goals are roughly balanced. The economic outlook remains uncertain, and the Committee is closely monitoring risks to its dual mandate.
In light of inflation developments and the balance of risks, the Committee decided to lower the target range for the federal funds rate by 0.5 percentage point to 4.75% to 5%. As it considers further adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee will continue to reduce its holdings of Treasury securities, agency debt, and agency mortgage-backed securities. The Committee remains firmly committed to supporting maximum employment and returning inflation to its 2% objective.
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee is prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the Committee's achievement of its goals. The Committee's assessments will take into account a wide range of information, including labor market conditions, inflation pressures and expectations, and financial and international developments.
Members who voted in favor of this monetary policy action included Chairman Jerome H. Powell, Vice Chairman John C. Williams, Thomas I. Barkin, Michael S. Barr, Raphael W. Bostic, Lisa D. Cook, Mary C. Daly, Beth M. Hammack, Philip N. Jefferson, Adriana D. Kugler and Christopher J. Waller. Michelle W. Bowman, who opposed the action, preferred to lower the federal funds rate target range by 0.25 percentage points at this meeting.
Later, Powell said in his speech that after taking into account the risks, we lowered the interest rate by 50 basis points today, and this adjustment will help maintain the strength of the economy and the labor market. "This decision reflects our growing confidence that as long as we adjust our policy stance appropriately, the strong momentum of the labor market can be maintained."
Nick Timiraos summarized the highlights of Powell’s press conference:
- This is undoubtedly a series of rate cuts, albeit a "recalibration": "We have actually started a rate cut cycle."
- The larger rate cuts are mostly about risk management: "We don't think we're behind the times... You can view this as a commitment that we don't want to be behind the times."
- The slowdown in the labor market "is something to watch and we are watching closely."
- A not entirely dovish view: “I think the neutral rate is probably significantly higher now than it was before the pandemic, when it looked like the actual neutral rate might be negative.”
The China International Capital Corporation (CICC) said in a statement that the Fed is more aggressive than we expected. Its reaction function has completely shifted from focusing on inflation to focusing on employment. Although Powell denied victory in the fight against inflation at the press conference, he now seems to be focusing only on employment. The Fed has a low tolerance for rising unemployment, and officials do not want to take risks and undermine the bright prospects of a "soft landing". Any unemployment rate above 4.4% in the future may trigger more rate cuts. The Fed's rate cuts will support demand expansion, and US economic growth may continue to maintain a high growth rate. In the medium term, the US policy combination of "loose fiscal policy and loose monetary policy" may increase inflation risks.
Chris Aruliah, head of institutional business at Bybit, said that historically, lower interest rates usually lead to funds flowing from banks to the stock market, and lower interest rates reduce the returns of traditional investment tools and also prompt more investment to riskier assets, including digital currencies. The Fed's 0.5% reduction may stimulate the cryptocurrency market in the short term, but it is still crucial to remain vigilant in an environment of economic uncertainty and market volatility. The global economic slowdown, coupled with various weak economic indicators and geopolitical complexities, has hit investor sentiment at the same time.
Greekslive pointed out that the implementation of the interest rate cut has led to an overall rise in cryptocurrencies, while the US stock market has performed poorly. In terms of options, the implied volatility of major maturities has dropped significantly. There will be another interest rate meeting on November 8 and December 19 this year. The market expects a cumulative interest rate cut of 100 basis points. The next interest rate cut meeting will be superimposed on the US election, and the market volatility may be very large at that time.
QCP Capital's latest report pointed out that the Federal Reserve announced a 50 basis point rate cut last night, and plans to cut it twice more this year and four more times in 2025. Although Powell remained vague about the scale and rhythm of subsequent rate cuts, the market will pay close attention to the upcoming labor data. At the same time, the spread between the 2-year and 10-year U.S. Treasury bonds has been inverted since July 2022, but has recently risen to +8 basis points, indicating that market optimism and risk appetite have increased. In the options market, implied volatility fell sharply after the FOMC meeting, with BTC falling by 19 volatility points and ETH falling by 18 volatility points. After the FOMC, BTC rose from $59,000 to $62,000, and the price of ETH was about $2,400. The decline in market volatility provides opportunities for investors.
Jeffrey Ding, chief analyst of HashKey Group, said: The darkness before dawn has passed, and the starting point of a new round of tidal market has arrived. The Fed's 50 basis point rate cut this time indicates that it has obvious concerns about the current economic environment and needs to start a rate cut cycle with a larger scale. The global economy has recently faced liquidity challenges, and this rate cut decision has released new vitality for the global financial market. Bitcoin, as the "digital gold" of the new era, has performed strongly against this background, breaking through and rising by $62,000 in the short term. However, it is not only Bitcoin that benefits this time, but the entire crypto market is expected to usher in a new round of market in the loose monetary policy. It should be noted here that, unlike traditional markets, Bitcoin's performance is more affected by US dollar liquidity rather than changes in the US economic outlook. This means that in the future loose monetary environment, Bitcoin may continue to be the preferred asset for investors to fight inflation and seek safe havens. As the rate cut cycle continues, the crypto market may enter a longer rising channel. Market volatility still exists, but this round of cryptocurrency market may drive more funds and innovation into the field, pushing the entire crypto ecosystem into a new stage of development.
