The wait for this rate cut lasted four years, but the financial market showed mixed performance before and after the announcement. All three major U.S. stock indexes fell, erasing the gains since the Fed announced its interest rate decision. In addition, spot gold has also completely given up the gains since the Fed announced its interest rate decision. On the other hand, the crypto market rose across the board, with BTC once rising to over $62,500.
Brad Bechtel, global head of foreign exchange at Jefferies, also said that before the Fed made its interest rate decision, market expectations were almost 50-50. Therefore, the Fed obviously surprised half of the market. The Fed is trying to get ahead of the slowdown in the US economy and provide support. But so far, the market's reaction has not been too crazy, and a lot of the reaction has been reflected in the price.
Influenced by the Federal Reserve's interest rate cut, the Hong Kong Monetary Authority also announced that it would cut the benchmark interest rate by 50 basis points to 5.25%, and the Louisiana state government in the United States also agreed to accept Bitcoin payments.
Regarding this rate cut, Federal Reserve Chairman Powell said that the Fed has not declared victory in inflation, but the economic situation has begun to be more optimistic, and this adjustment will help maintain the strength of the economy and labor market.
What does a sharp interest rate cut mean? Some analysts believe that historically, unless there is a major economic crisis, the Fed rarely cuts interest rates by 50 basis points when starting a new interest rate cut cycle. This shows that the Fed is taking more aggressive monetary easing measures to cope with potential downside risks to the US economy. This move reflects the Fed's high vigilance against the current economic situation, especially in the face of slowing consumption, shrinking manufacturing and a weak job market, striving to achieve a "soft landing" for the economy and avoid a deeper recession.
In an environment of interest rate cuts, a loose monetary environment is usually accompanied by an overflow of liquidity, which provides a relatively favorable growth space for high-risk assets.
Generally speaking, the short-term volatility of asset prices caused by interest rate cuts mainly depends on the market's interpretation of the rate cuts, that is, whether it is a warning signal of potential economic problems or a positive expectation of liquidity injection. The Fed's interest rate cuts usually reduce borrowing costs and release more liquidity into the market, which is often seen as a positive, driving up the prices of risky assets.
However, if the market believes that the rate cut is too large or the timing is abrupt, it may suggest that the economy faces deeper structural problems, such as slowing economic growth, a weak job market or rising inflationary pressures. These factors will cause investors to worry, leading to fluctuations or even declines in asset prices.
