Of course it concerns you! Whether you have a monthly salary of 30,000 or 3,000, whether you are doing triathlon or triathlon, the Fed’s interest rate cut will eventually affect everyone, but different people may have different levels of understanding.
In the first two articles of Hualihuawai, we talked about the Fed’s interest rate cut. In the early morning of this morning (Beijing time), the Fed also officially announced that it would lower the target range of the federal funds rate to 4.75% to 5%, a 50bps cut. This is the first interest rate cut by the Fed since 2020. As shown in the figure below.
In the past two days, I have also seen some comments from friends on the backend of the official account regarding the Fed's interest rate cut. Next, we will select a few issues that you may be more concerned about and make a simple summary. This article can be regarded as a supplement to the previous article.
Question 1: Does the US interest rate cut mean surrender and a defeat in its financial war?
Answer: Now many self-media bloggers are arguing that the Americans insist on not cutting interest rates just to bring down China and to wage a financial war with China to see who can hold out to the end. Now that the Americans can finally no longer withstand the interest rate cuts, it means we have won.
I don't know why some bloggers are trying to lead the trend, or have they watched too many anti-Japanese dramas? The US does not cut interest rates just to blow up China - I have reservations about this view.
Because for the Americans, if they really want to fight a financial war, first of all, they basically have no opponents (I am just stating a fact), and secondly, there are many ways to fight a financial war. For example, the Americans have been raising tariffs, which is a very good financial means. If they insist on not lowering interest rates just to blow up a certain country, it is like cutting off one of their own arms in order to cut off another's leg. I think there is no need to use such extreme methods to fight a so-called financial war against only one country.
Here we share a small piece of data for your understanding. We all know that China's electric vehicle industry has developed rapidly in recent years, but spodumene, an important raw material for lithium batteries in electric vehicles, is actually imported from Australia by 79% (data from 2023). Of course, the above must also know the potential problems here, so they have been trying to make some changes in the past two years, such as increasing the mining and import volume of African ore. From January to May 2024, China's lithium ore imports were 2.1803 million tons, a year-on-year increase of 30%; of which 1.369 million tons were imported from Australia, a year-on-year decrease of 4.2% (but still accounting for 63%); 475,000 tons were imported from Zimbabwe, a year-on-year increase of 784.6%. (Note: The current global lithium reserves total 28 million tons, Chile is the world's largest lithium reserve country, Australia ranks second but is the world's largest lithium producer, and China is the largest lithium consumer)
We believe that the factors behind the US interest rate cut are more based on their own data (such as inflation, employment rate, etc.) and their own needs. Although this decision may have a close connection with some countries, it will certainly not be to the extent of raising/lowering interest rates simply to target a certain country.
Nowadays, many self-media bloggers like to post conspiracy theories or set the tone. In the era of information explosion, everyone can be a self-media person. This is something that everyone can judge for themselves.
Question 2: Why did the Federal Reserve cut interest rates by 50bps instead of 25bps?
Answer: We have already explained in yesterday's (September 18) article that 50bps is in line with most people's expectations. In other words, a 0.5% drop in September is a general consensus in the market, and the Federal Reserve needs to consider this factor.
This is because if there is no interest rate cut in September or the cut is too small (for example, only 25bps), it will inevitably cause dissatisfaction and panic in the market, causing instability in the US stock market (perhaps a sharp drop).
However, if it drops too much (for example, by 75bps), it will cause instability, which will not be conducive to controlling the inflation that has just been stabilized, and may directly lead to a rapid outflow of funds. In this case, US stocks may also fall sharply.
In short, the Fed is very good at managing expectations. Since neither this nor that works, then directly following market expectations is definitely the best option. This throws the question back to the market: Although the rate was directly reduced by 50bps this time, it does not mean that the market will enter a continuous rate cut cycle (is it possible to reduce it several times and then increase it once?); although it has been reduced a lot (some people expected 15bps, but I directly gave 50bps), it does not mean that the US economy has fallen into recession.
Moreover, Powell also made it clear in his speech: There is no fixed interest rate path and there is no sign of recession in the US economy!
Regardless of whether Powell is tough or not, the market is all about expectations. Therefore, we also see that after the announcement of the rate cut, the market did have some fluctuations, but there was no surge or plunge. The Fed's cleverness is that it said everything but it seems that it didn't say anything, and it did what it should do but it seems that it didn't do it, just not giving people any chance to speculate now~
Question 3: The Fed directly lowered the interest rate by 50bps this time. Does this mean that the US economy has fallen into recession?
Answer: This issue has actually been mentioned in the above answer. First of all, Powell does not admit that the US economy is in recession.
Secondly, in yesterday's (September 18) article, we have also explained that the key to this issue is that we will not know whether there is an economic recession until a few months after the official rate cut. Don't be led by some self-media to say that the Fed's rate cut this time means that the US economy has fallen into recession.
Yes, if we only look at history, several previous interest rate cuts were indeed due to the US economy falling into recession, such as the recession caused by the Gulf War, the bursting of the Internet bubble, and the subprime mortgage crisis (global financial crisis). But at least at this stage, we have not seen any effective evidence that the United States is experiencing a recession.
Of course, judging from some current data, the US economy has indeed encountered problems, such as the collapse of Silicon Valley Bank last year, and even reports that the employment data released by the US was fake. But to be honest, don’t other countries fake data? Can the economies of other countries be better than the US at present?
If someone insists that the current interest rate cut is because the US can no longer bear it, that the US financial war has failed, and that someone will directly replace the US as the world's largest country (I also believe that it will happen, but not so soon), then I will not make any rebuttal and just let the bullets fly for a while.
Question 4: Will the Federal Reserve continue to cut interest rates?
A: Do you have the final say over the Federal Reserve? You just say whatever you want? The current rate cut can only mean that the previous continuous rate hike cycle has ended, but it does not mean that the next cycle will definitely be a continuous rate cut cycle!
According to this logic, does it mean that after 11 consecutive weeks of rising (the Federal Reserve raised BTC 11 times from March 2022 to July 2023, with a cumulative increase of 525 basis points), the next 11 weeks will see consecutive declines? Can't it fall first and then rise, or fall and rise?
As for some opinions on the Internet, for example, some people predict based on the dot plot that the Fed will cut interest rates X times in a row from 2024 to 2026 and the interest rate will eventually drop to 2.75%... Such opinions can be simply viewed, these are just people's speculations. The dot plot is actually just an expectation or prediction of the interest rate path by the bigwigs with voting rights in the Federal Reserve (composed of 19 officials, so there are 19 dots). Each person's prediction (anonymous) represents a "dot" on the graph, and the market generally pays attention to the "midpoint". In other words, the dot plot is just the prediction of these bigwigs and officials, which cannot represent the final voting results or the unified consensus within the Federal Reserve.
No one can accurately predict the future. As my friends in the group said today: take three steps and then look ahead.
Question 5: The US interest rate cut will also be beneficial to us. Will the A-share market and real estate industry definitely usher in a bull market?
A: If you are so sure, then just All In. Anyway, I am not 100% sure of this. This question needs to be looked at separately:
First, if we just talk about it in theory, then it is right for money to flow back to the world after the Americans cut interest rates, but how can you be sure that it will flow to us?
I have also seen some experts say recently that it is expected that $1 trillion of funds will flow back to China (the money earned by Chinese companies from exports has been stored in the United States at high interest rates in the past two years, and it is estimated that there is a volume of $2 trillion, and half of it is tentatively scheduled to flow back in the future). I also agree with this view. At the same time, this part of the returned money (mainly state-owned enterprises or large enterprises will give priority to returning because their risk appetite is relatively low) will definitely promote the appreciation of the RMB against the US dollar. It is not ruled out that the RMB will break 7 in the future, but it will not be too exaggerated. It is estimated that there is only about 10% room at most.
But can you be sure that this part of the money will go directly (all) into the A-share market and real estate after it comes back? This is definitely a question mark! If it were you, would you buy a house directly as a buyer after the funds flow back? Here I can only say that our problem may be quite special, and the potential problems of the house are still very large, and it should not have reached the DI stage yet...
Of course, it is certainly possible that the US dollars flowing into other countries will continue to be used to buy from us or invest in the mainland through Hong Kong and other channels, but the first choice is likely to be to buy our national debt or some emerging industries, rather than immediately "buy the dips" the so-called "assets" in your eyes to help you take over. They are smart money, not stupid money. As for how much liquidity there will be, this is still unknown.
Second, it doesn’t mean that once the US cuts interest rates, the US dollar will immediately start flowing into various parts of the world. If things were really that simple, then you could be the chairman of the Federal Reserve.
What I am more concerned about at the moment is that in the first few months of the interest rate cut, it is possible that capital has entered a "sedimentation period". In plain words, the big guys are holding a lot of cash and continue to keep it, and then hope to continue the so-called "pull-up" state for a while, let some assets continue to fall sharply, and then spend the money to start "buy the dips". Of course, this process is also very fast, and the big guys should have finished buy the dips before the leeks react, and then when the leeks react, it is the time for the leeks to start taking over at high levels again.
In fact, in the first few months of the interest rate cut, risks and opportunities coexisted.
Question 6: Why didn’t the crypto see a big bull market after the U.S. cut interest rates?
Answer: This question is the same as above. A rate cut does not mean that there will be new liquidity in the crypto. It is not that simple.
As I mentioned in yesterday’s (September 18) article: Personally, to be honest, I don’t really care about this short-term market change, because in the long run, this short-term change is not important. In addition, this round of interest rate cuts is fundamentally different from the interest rate cuts in 2020, and we are unlikely to see a repeat of the script that directly triggered a large-scale bull market.
Since we are fortunate enough to enter this field, we should take a long-term view, hold on to your Bitcoin, and continue to be patient. We will remain optimistic about the crypto market in 2025. You can even be like us and not care about the current price of Bitcoin. What you should care about is how many Bitcoins you have and whether you can continue to increase the amount of Bitcoins you have.
If you are interested in the crypto, you can just read more of Huali Huawai's previous related articles. We have already sorted out a lot of the opinions that should be said. Although some opinions are just personal opinions and may not be correct, they should be able to give you some different angles of thinking.
In summary, our sharing in this issue is just a brief summary of several issues that you may be concerned about in the past two days. From an investment perspective, the Fed's interest rate cut can indeed be considered the beginning of a new cycle. Now we are just at a critical juncture. The road ahead has just begun. There are still risks, but there are also great opportunities. It depends on how we seize the opportunities of this cycle.
We will temporarily stop the discussion on the topic of the Fed's interest rate cut. You are welcome to have different views or opinions, but the basic principle of our sharing is that I will not try to change your views, and you don't have to completely agree with our views. The most difficult thing in this world is to put your own thoughts into other people's heads. Instead of trying to persuade and change others, it is better to spend more time changing yourself and try to find people who are on the same wavelength as you. If there is a destiny, I can ask you and you can help me. If there is no destiny, just watch and don't say anything.
This is the end of our sharing of this issue. For more articles, please visit the homepage of Hualihuawai. The above content is only a personal point of view and analysis, which is only used for learning records and communication, and does not constitute any investment advice.
