Over the past year and more, the United States' interest rate hike cycle has been a source of global distress.

The Federal Reserve has raised interest rates eleven times consecutively from March 2022 to July 2023, with a cumulative increase of 525 basis points.

In the past year, the Federal Reserve has maintained the target range for the federal funds rate between 5.25% and 5.5%, the highest level in 23 years.

Finally, at 2 a.m. Beijing time on September 19, 2024, which is 2 p.m. on September 18 in Eastern Time, the Federal Reserve announced a reduction of 50 basis points in the target range of the federal funds rate to 4.75% - 5%, marking the first interest rate cut in four years.

Today's biggest news in the global financial and economic sector is undoubtedly the Federal Reserve's interest rate cut of 50 basis points to 4.75% - 5%.

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The Federal Reserve's interest rate decisions will not only affect the trend of the U.S. economy but also have a spillover effect on the world.

The most concerned issue domestically is what impact the Federal Reserve's initiation of this round of interest rate cuts will have on China's economy: More importantly, after the Federal Reserve's first interest rate cut in four years, will it bring prosperity and cyclical opportunities like "a long-awaited rain after a drought" for the world, including China, or will it be a long-term recession and a preview of a new round of economic crisis?

This article will delve into the causal logic and key essence behind the Federal Reserve's interest rate cut action based on a detailed combing of the latest monetary policy decisions of the Federal Reserve in September 2024, combined with several backgrounds and actual situations of this interest rate cut.

It will conduct an in-depth, attitude-laden, and well-founded special discussion and analysis of several possible subsequent trends and changes after this interest rate cut by the Federal Reserve, as well as the corresponding impacts.

On Wednesday Eastern Time (September 18), the Federal Reserve kicked off the interest rate cut cycle with a 50 basis point cut, lowering the target range for the federal funds rate to 4.75% - 5.00%.

This "unconventional" start of the interest rate cut cycle "met" market expectations but exceeded Wall Street forecasts.

In the interest rate statement, the Federal Reserve pointed out that recent economic indicators show that the U.S. economy continues to expand steadily, job growth has slowed down, and the unemployment rate has risen but remains low.

The inflation rate is moving further towards the 2% target, but is still slightly high.

The Federal Reserve has greater confidence in the inflation rate's continued progress towards the 2% target and judges that the risks of achieving full employment and inflation targets are roughly balanced.

In addition, according to the Federal Reserve's forecast, the U.S. federal funds rate will reach 4.4% by the end of this year, that is, a target range of 4.25% to 4.50%, which means that the Federal Reserve may cut interest rates by another 50 basis points within the year, totaling a cut of 100 basis points for the year.

The Federal Reserve chose a 50 basis point cut that is closer to the market, which can be considered as following the trend.

At the subsequent press conference, Powell said six points of information: 1.

The upward risk of inflation has weakened, while the downward risk of the labor market has increased; 2.

Considering the risks comprehensively, we cut the interest rate by 50 basis points today, and this adjustment will help maintain the strength of the economy and the labor market; we believe that cutting interest rates by 50 basis points is the right choice; 3.

We have not declared victory over inflation, but the situation is encouraging; 4.

We do not intend to stop reducing the balance sheet in the short term; 5.

If employment data had been released at that time (during the July interest rate meeting), we might have cut interest rates in July; 6.

Strongly hope to maintain the independence of the central bank.

The biggest suspense of 2024 has finally been confirmed.

50 basis points are enough to make the global economy and financial markets boil, and also allow many people's emotions to be released.

Looking back since 2022, the Federal Reserve has raised interest rates through 11 operations, and the U.S. interest rate has risen from 0.25% to 5.5%.

A violent increase of 525 points, with the intention of blowing up the global economy.

The United States is gambling, and China is also gambling, to see who will blow up first.

So why did the United States choose this node to cut interest rates?

The surface reason is actually very simple, the U.S. economy is not good either, the U.S. PMI in August was only 47.2, in the past 22 months, there were 21 months below 50, PMI is the view of enterprises on the economy, 50 is the line of prosperity and decline, above indicates that everyone is optimistic about the economy, below is that they think the economy is not good, indicating that U.S. enterprises think it is quite bad now.

Then the U.S. non-farm employment is also not as expected, the number of new jobs added in the last year was actually revised down by 818,000, that is, originally counted as an increase of 2.9 million jobs, now it is said that only 2.1 million jobs were actually employed.

There is also the Sam rule, which is a rule calculated based on the unemployment rate.

As long as the Sam index exceeds 0.5, the U.S. economy will fall into a recession.

The Sam rule has been triggered 11 times in the past, and the U.S. economy has all declined, and the Sam rule has been triggered for the 12th time recently.

If everyone thinks that the above data is too complicated and can't understand it, it doesn't matter, let's tell you a simple one, the stock god Buffett, recently has been crazy to sell U.S. stocks, Apple's position has been cut by 50%, and more than 7 billion U.S. dollars of U.S. bank stocks have been sold, and then continuously buying U.S. Treasury bonds, the old man's short-term debt holdings are about to exceed the Federal Reserve, in short, it is expected that the U.S. economy will decline, and the Federal Reserve will make a big effort to cut interest rates to save the market, and the stock god is ready to eat a big meat again.

In general, the surface reason for the Federal Reserve's interest rate cut is that the real economic situation of the United States is not as good as the data and the words of Federal Reserve officials show, adjusting monetary policy is to balance the domestic economy.

But the deeper reason should be combined with the upcoming presidential election in the United States in 2024.

The 2024 U.S. presidential election is scheduled to be held on November 5, 2024.

The Federal Reserve chose to send warmth to assist about 50 days before the election vote, the Democratic Party will thank Powell.

There is nothing to be embarrassed about, it is a capitalist country, politics and financial economy are inseparable, who the Federal Reserve supports is actually an important window to observe the subsequent domestic political situation in the United States.

The matter is such a matter, with evidence and clear at a glance.

For this interest rate cut by the Federal Reserve, many domestic third-party institutions and experts have interpreted and analyzed in the first time.

Looking at all the views and conclusions, there are roughly the following aspects: First, the Federal Reserve's interest rate cut opens up space for China's regulatory policies; second, the Federal Reserve's interest rate cut will drive international capital to flow back to China; third, the Federal Reserve's interest rate cut has a supporting effect on the RMB exchange rate.

The above three views and conclusions are currently more mainstream views and conclusions on "the impact of the Federal Reserve's interest rate cut on China's economy".

Of course, there are also many institutions and experts who have not expressed their views on this issue, they just commented on the event of the Federal Reserve's interest rate cut, and did not talk about the spillover effect.

Overall, it is more optimistic and full of expectations that the mainstream view occupies.

However, if you carefully consider the above views and conclusions, you will find that there are many loopholes and logical problems in itself.

The magnitude of the Federal Reserve's interest rate cut exceeded external estimates, because looking at the current good economic situation of the United States, a 25 basis point interest rate cut is a high probability, but did not expect to be twice as high as the estimate, which indicates that the Federal Reserve hopes to use a stronger medicine to prevent possible economic recession problems.

Interest rate cuts are actions to activate the market.

The cost of enterprises obtaining funds is lower, and they are more willing to invest.

The cost of residents obtaining loans is lower, and they are more willing to consume.

The market is active, and the economy will not decline.

But as long as you open the Federal Reserve's interest rate cut schedule, you can easily find that every time the Federal Reserve carries out a strong medicine-style interest rate cut of more than 50 basis points, it is under the shadow of a huge economic recession: Looking at history, since 1982, there have been 7 rounds of interest rate cuts by the Federal Reserve, and the U.S. economy has had 3 "hard landings": In 1990, the Gulf War led to a 20% drop in global oil supply, and oil prices soared to $42 a barrel.

With the painful lessons of the first two oil crises, the Federal Reserve took the lead in taking strong medicine, from July 1990 to April 1992, in less than two years, it cut interest rates 18 times in a row, with a cumulative cut of 5.25%.

In 2001, the bursting of the Internet bubble was another major sign of economic recession.

The Federal Reserve urgently cut interest rates, from January 2001 to December 2001, in one year, it cut interest rates 11 times in a row, with a cumulative cut of 4.75%.

In 2008, "Fannie Mae Freddie Mac" detonated the subprime mortgage crisis, causing the 08 financial tsunami, and the Federal Reserve even cut interest rates 10 times from September 2007 to December 2008, with a cumulative cut of 5.25%.

The other 4 times were soft landings, and the interest rate cuts played a big role in preventing the decline of the U.S. economy, but the interest rate cuts for soft landings were basically orderly and continuous.

So interest rate cuts, especially large and continuous interest rate cuts, are essentially a strong medicine used by the United States to deal with major financial storms and serious economic recessions.

In layman's terms, the United States is trying to make the economy land softly, and through large interest rate cuts, it cushions the risk of economic deceleration.

The Federal Reserve's interest rate cuts can be roughly divided into two categories: preventive interest rate cuts and relief interest rate cuts.

Preventive is to cut interest rates when the economy slows down, and relief is to cut interest rates when the economy is in a recession.

It is meaningful to discuss the corresponding significance and impact only by clarifying which type this time is.

The U.S. economy currently looks quite good, inflation has fallen, unemployment is at a new low, and the second quarter GDP growth rate even reached 2.8%.

It seems that everything is good, but why cut 50 basis points?The three crises mentioned above, namely the Gulf War crisis, the internet bubble crisis, and the subprime mortgage crisis, saw the United States successfully prevent a hard landing of its economy through consecutive substantial interest rate cuts.

Each time, the U.S. economy managed to turn danger into safety.

Therefore, the Federal Reserve's substantial rate cuts are not an indication of a significant economic downturn in the U.S., but rather a preemptive measure taken in anticipation of a potential recession.

Of course, from the perspective of other countries, this "preventive measure" by the U.S. is achieved by shifting the crisis elsewhere.

This is often referred to as the notion that if the U.S. catches a cold, it takes strong medicine to cure itself, while the rest of the world braces for a fever.

Due to the hegemony of the U.S. dollar, the U.S. can influence the global financial market through strong interest rate measures, thereby transferring its own risks outward.

The U.S. dollar, being the most widely circulated currency in the world, significantly affects the currencies of other countries.

Once the U.S. begins a series of substantial interest rate cuts, the cost of capital for businesses drops rapidly, and U.S. companies will then invest (harvest) in countries with severely devalued high-quality assets using a large amount of low-cost dollars.

This is how the U.S. has always played the game, stabilizing its domestic economic fundamentals and then using low-cost dollars to sweep the global market to fill the previous losses.

So, how should we view the logic behind the Federal Reserve's rate cuts this time?

First of all, regardless of whether the market and other countries are willing or happy, the whole world has to admit that the Federal Reserve's ability to manipulate the faucet is still there.

Whether it's in terms of economy or politics, the magic wand of monetary policy has always exerted tremendous power.

Secondly, based on the current reality of the U.S. economy and the performance of the global economic environment, this rate cut is a preemptive one, but it is quite special, with the first cut being relatively aggressive.

Finally, starting from the logic of preemptive rate cuts, it will directly increase the probability of a soft landing for the U.S. economy, but it will inevitably increase the global bottom-fishing impact corresponding to the dollar's easing.

From experience to reality, it is very important to grasp this essence and logical relationship.

So, for China, what will the Federal Reserve's substantial rate cuts bring this time?

In recent years, China has been going against the global trend in financial policy.

Over the years, to hedge against the impact of the U.S.'s continuous interest rate hikes, most countries in the world have been following suit, but China has been cutting interest rates.

For other countries, in order to retain dollars, if the U.S. raises interest rates by 0.5%, they also raise interest rates by 0.5%, so there's no need for capital to return to the U.S.

But for China, the primary task is to reduce the cost of capital for businesses, so it cuts interest rates.

If China were to follow the U.S. and raise interest rates, it might be able to keep some money domestically, but the willingness of businesses to invest would be lower, and asset price bubbles would be larger and more prone to bursting quickly.

To put it more bluntly, this is essentially a problem of choosing between two poisons, which is the logic of "when comparing two harms, choose the lesser; when comparing two benefits, choose the greater": one poison, not synchronizing with the U.S., choosing to cut interest rates, then capital will flow out massively; the other poison, synchronizing with the U.S., also choosing to raise interest rates, then the cost of capital for businesses will be higher, the willingness to invest will be lower, and asset price bubbles will be larger and more prone to bursting.

If the asset bubble bursts too quickly, it will also usher in the risk of a "hard landing" for the economy.

So if you have to choose between these two poisons, choose the one with less harm.

Of course, some people might think that in the past few years, China has been under tremendous economic pressure (capital outflow), going against the global trend, while the whole world has been forced to follow the U.S.'s interest rate hikes, China has chosen not to.

Now that the U.S. has finally started substantial interest rate cuts, what about China?

There is a view that China and the U.S. have probably reached some kind of tacit understanding.

The U.S. has its own problems to solve, and China has its own problems to solve.

Although the two sides are still competing and not getting along, they try to minimize mutual harm because the current situation is that if China and the U.S. fight fiercely, both will be hurt, and Europe, Russia, and India will laugh.

If China and the U.S. ease the fight and let both sides catch their breath to solve their domestic problems, that would be the best.

As mentioned above, the essence of the U.S.'s substantial interest rate cuts is to avoid a possible severe economic recession.

The Federal Reserve only starts substantial interest rate cuts when it observes that the risk of a hard landing in the economy is too high.

Substantial interest rate cuts are the strong medicine for the U.S. to prevent and cure diseases.

At this time, the U.S. is most afraid of fighting fiercely with China, leading to a deadlock.

China is the same, China's biggest problem now is also the economy, the economy is sluggish, confidence is insufficient, China also needs time to catch its breath, to solve its own internal economic problems, China also does not want to fight fiercely with the U.S. at this time.

So the most important issue for China and the U.S. in the next period is only their own economies.

In addition, there is another important trend signal that should not be missed: after the Federal Reserve announced a 50 basis point rate cut, the spot gold price soared and hit a historical high of $2600.16 after the start of the press conference by Federal Reserve Chairman Powell, then sharply reversed the gains and turned to a decline, hitting a daily low of $2546.98.

Obviously, capital is very clear that the Federal Reserve's rate cut does not mean that the Federal Reserve's monetary policy has turned to easing.

In summary, the Federal Reserve's rate cut has caused so many people in China to be excited, and everyone hopes that the Federal Reserve's rate cut can have a greater impact on China's economy, but the final result may only be a ripple.

From the perspective of China's national point of view, it will inevitably consider the capital sweeping after the Federal Reserve's rate cut, and all the unpredictable economic crises that may be caused by the adjustment of key interest rates, so rational judgment, in the short term, the Federal Reserve's rate cut, China will still maintain a stable and proactive defensive posture, loose outside and tight inside, remain vigilant.

Under such a main line analysis logic, patience and persistence are essential virtues.

Is that clear?

Of course, rational restraint, pragmatic and clear views may not have much market in the current restless public opinion and Internet environment, but time and results will prove a lot of things.

Many times, you can't be in a hurry.

With the Federal Reserve's interest rate cut, the change in exchange rates will not only affect the settlement cost of international trade, but may also trigger accelerated capital flows and changes in foreign exchange reserves.

Theoretically speaking, the Federal Reserve's monetary easing cycle will lead to a decline in U.S. interest rates, promoting international capital to flow to emerging markets with higher returns.

To some extent, the Federal Reserve's rate cut helps to converge the economic cycles and monetary policy differentiation between China and the U.S., easing the pressure of China's capital outflow and exchange rate adjustment, and expanding the autonomous space for China's monetary policy, but this should not be expected too high.

The Federal Reserve's rate cut will not produce a big direct reaction in the domestic capital market.

For the Chinese market, the main impact logic is how the external easing effect is transmitted in, that is, the response of domestic policy.

Every time the interest rate is cut, the U.S. will encounter a thorny problem: how to prevent a large-scale withdrawal of global capital?

Especially, from the perspective of Wall Street, it is definitely not hoped that the capital currently staying in the U.S. stock market will go to China, or other countries and economies.

This is the key.

History has proven many times that the more chaotic the world is, the longer the global capital stays in the U.S.

This is what the U.S. is willing to see.

So, whether it's experience or logic, the world after the Federal Reserve's rate cut will definitely not be too calm.

China's policies from last year to now have been prepared for the Federal Reserve's rate cut, including lowering the reserve requirement ratio, interest rate cuts, stimulating consumption, and stimulating real estate policies.

Now that the rate cut across the ocean has really come, the previously released policies are about to show their effects.

If the economic stimulus policies are still not significant, then there is no doubt that there will be more significant economic stimulus policies - including but not limited to: significantly lowering interest rates, continuing to lower mortgage interest rates.

But there is a key premise: "the meat must rot in the pot."

Before the economic and trade relations between China and the U.S., and after the new U.S. president and team take office, give enough certainty, there is no possibility of reversing this defensive posture.

Corresponding to the domestic real estate market, stock market, and economic environment, that is, the Federal Reserve's rate cut, in the short term, in addition to the emotional and public opinion environment, will not bring any impact and influence.

If you've drunk all the water in the river, you don't mind this sip.

If you want to move, you have to wait until the U.S. economy lands, whether it's a hard landing or a soft landing, and then decide how to move after landing.

This must be the best strategy for the country.

And from an individual's point of view, you have to consider the transmission process of the impact of the Federal Reserve's rate cut, and the time the domestic management department needs to determine the Federal Reserve's rate cut.

At this stage, stay away from some speculative expectations and voices that promote benefits, even if these things seem very logical and convincing, stay away.

After being under pressure for so long, expecting the Federal Reserve's rate cut to turn things around overnight is not a very strong bone, and this approach is also very ridiculous.

So, those who wait can wait.

The real bottom is actually after all the speculative good expectations are realized, or after the bad news has hit.

This view is worth everyone's careful consideration.

Let the bullet fly for a while, in case there is a surprise or a shock?

The above is a special combing and impact analysis discussion on the latest interest rate cut trend of the Federal Reserve in September 2024, and shares with all the readers of the headlines.

(According to the latest regulations of the relevant national departments, the content and opinions of this article are for reference only, and do not constitute any explicit advice on real estate, investment and other behaviors, and the market risk is borne by oneself.)