PANews reported on September 21 that according to Beijing Business Daily, the Federal Reserve announced that it would lower the target range of the federal funds rate to 4.75% to 5%, a 50 basis point cut. This is the first rate cut by the Fed since 2020. The Fed's 50 basis point cut is the first rate cut since 2020, which is larger than market expectations. 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 rate cut cycle. This shows that the Fed is taking more aggressive monetary easing measures to cope with the potential downside risks of 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" of the economy and avoid a deeper recession. In an interest rate cut environment, a loose monetary environment is usually accompanied by a flood of liquidity, which provides a relatively favorable growth space for high-risk assets.
Some analysts pointed out that virtual assets have become an important choice for investors seeking high returns due to their high volatility and strong risk appetite. Especially in the context of the continued easing of the Federal Reserve's policies, investors' concerns about the depreciation of the purchasing power of fiat currencies may further increase the demand for virtual assets. Generally speaking, the short-term volatility of asset prices caused by interest rate cuts depends mainly on the market's interpretation of the interest 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 interest rate cut is too large or the timing is abrupt, it may imply that the economy is facing deeper structural problems, such as slowing economic growth, a weak job market or rising inflationary pressures. These factors will trigger investors' concerns, leading to asset price fluctuations or even declines.
