The Federal Reserve cut interest rates by 50 basis points last night
It was unexpected, but also reasonable. After all, according to market surveys, the probability of a 50 basis point rate cut has risen to 60%. The Fed always controls market expectations in this way. A 25 basis point rate cut would be dovish. Fortunately for the market, Bitcoin did not immediately surge by 10%+. This pace of growth is also what I am happy to see.
It is said that a 50 basis point rate cut indicates that the fundamentals are not very good. In fact, the trading recession is a bit too large. It may not be possible to achieve a market like 312 even after half a year. Through the monetary policy of the Federal Reserve and market expectations, it may not come after the bull market of Bitcoin is over... Let the violent bull fly for a while~
In addition to announcing the first rate cut in more than four years, the latest FOMC projections show the Fed will cut rates two more times in 2024, with most officials expecting the central bank to cut rates by a total of 100 basis points this year. Rates are expected to fall further in 2025, with a forecast of 3.4%, with long-term rates bottoming out at 2.9%. This typically helps stimulate markets as traders tend to allocate to risky assets on the prospect of a return to loose monetary policy.
How to view today's interest rate decision
1. A week ago, everyone thought that a 50 basis point rate cut was unlikely, but after Nick's briefing last Friday, the market gradually accepted it. Many people say that 25 points means that the economy is controllable and there is no risk. 50 points means that the Fed has seen something that everyone else cannot see. Today, the Fed's announcement of a 50 basis point rate cut does not represent what I have seen, but it represents my confidence in controlling inflation and my emphasis on supporting the economy. From past historical experience, the Fed's support effect is still good. Today, the market is relatively stable. This is the success of the Fed's expectation management and the success of Nick's advance briefing. 2. The key to the future is the economy. We have talked about the importance of the first rate cut of 50 or 25 points before. In fact, it is not as important as the subsequent rate cut rhythm. After all, the Fed is now taking a step-by-step approach. And the important point of taking a step-by-step approach is how the economy is doing.
Market expectations and sentiments have been jumping back and forth between a soft landing and a hard landing, and market volatility has also increased. Whether there will be a recession or not is the new anchor for the future market, but my personal opinion is the same as before. The probability of a recession is not high, especially when no greater risks are seen. Timely support can further increase the resilience of the economy. 3. From the first rate hike in March 2022 and the start of balance sheet reduction in June, to the accelerated rate hikes (75 basis points in three times), to the suspension of rate hikes and the slowdown of balance sheet reduction, it took 2 and a half years to finally get to today's rate cuts. The next step is to look forward to when to stop the balance sheet reduction. From a medium- to long-term perspective, the US monetary policy has begun to shift from tightening to easing. It can also be said that it is the beginning of the "turning point" of the big cycle. Of course, the road to easing is still bumpy and bumpy, but the general direction needs to be grasped.
Rate cuts don’t immediately predict a recession
First, we need to understand that the Fed usually raises interest rates to control inflation and cool the economy, while it cuts interest rates to prevent a recession and increase market vitality and economic resilience by injecting funds.
Historically, the Fed has often taken action only after the economy has shown signs of recession due to its lack of experience in previous interest rate cuts, which has led to a lack of public confidence in its ability to regulate the economy. This lack of confidence may have exacerbated the economic recession and market panic before and after the interest rate cuts.
However, today's Fed is no longer the same. It has extensive experience in macroeconomic regulation, including interest rate hikes and cuts, and the public has greater confidence in its ability. Coupled with the strong performance of economic data such as non-farm payrolls and CPI in recent months, if the Fed decides to cut interest rates this month, it may be interpreted by the market as a timely preventive measure rather than a signal of recession.
So while a rate cut is often viewed as a sign of concern about the economic outlook, in the current economic environment it is more likely to be an effort to keep the economy growing steadily and healthy rather than signaling the start of a recession.
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