The Federal Reserve cut interest rates by 50 basis points at its September 2024 interest rate meeting, exceeding market expectations. This is the first interest rate cut by the Federal Reserve in four years, and also marks a shift from a monetary policy tightening cycle to an easing cycle.

After all, it is the beginning of a rate cut cycle, and the capital market did not experience the big fluctuations imagined. Instead, it performed differently: the three major U.S. stock indexes rose and fell on the day, all turning to decline, completely wiping out the gains since the Federal Reserve announced its interest rate decision; spot gold has also completely given up the gains since the Federal Reserve announced its interest rate decision; after the crypto market rose and fell, it started to rise again.

The U.S. stock market and gold can be considered as profit-taking after the expected rate cut was realized, while the crypto market had been suppressed and fell sharply in the early stage. After the rate cut was implemented, the pessimistic sentiment was released. In addition, with the start of the rate cut cycle and the continued decline in risk-free interest rates, institutional investors may increase their layout in the crypto market and seek higher returns, which is also a reason.

In theory, a rate cut cycle is good for the capital market, but after this rate cut, the market is still not sure whether the US economy will go into recession. Although Federal Reserve Chairman Powell was very hawkish in his subsequent remarks, believing that the US economy is strong and will have a soft landing, the market obviously does not fully believe it.

Historically, interest rate cuts of 50bp have only occurred in economic or market emergencies, such as the technology bubble in January 2001, the financial crisis in September 2007, and the epidemic in March 2020. With this 50 basis point interest rate cut, the market is still worried about economic problems. If this core concern is not resolved, it will be difficult for the market to see a trend of a sharp rise in the short term, and it will be more like "more rises, more falls, more falls, more rises".

Leaders from all sides also summarized the rate cut. Fed Chairman Powell: He will choose to speed up or slow down the pace of rate cuts based on actual market conditions; Trump: The Fed's rate cut shows that the US "economy is very bad"; US Vice President Harris: This is good news for Americans who are under pressure from high prices; Nationwide Chief Economist: The Fed will continue to cut interest rates rapidly; "New Bond King" Gundlach: It is expected that the interest rate will be cut by 50 basis points in November and another 75 basis points by the end of the year; Global X Investment Strategy Director: The Fed's 50 basis point rate cut may be too aggressive; Standard Chartered Bank executives: Stablecoins can alleviate the negative impact of the Fed's rate cut on Treasury bonds and money market tokens; US Senator Warren: Powell acted too late and further rate cuts are needed.

What Next?

In the short term, as the depressed sentiment in the crypto market is released and the risk-free interest rate declines due to the interest rate cut, crypto assets are more attractive to funds and may continue to rebound. Since it will take several months to verify whether the economy is in recession, there is no need to panic at this stage.