Chainfeeds Summary:
Binance Research recently released a report that delves into the ins and outs of the Federal Reserve's interest rate policy and its impact on the economy and various asset classes. TechFlow has summarized the key information from the report.
Source:
https://www.techflowpost.com/article/detail_21905.html
Author:
TechFlow
Viewpoint:
TechFlow: The Federal Reserve announced a 0.5% rate cut in September 2024, followed by a further 0.25% cut in November, marking the first rate cut since the COVID-19 pandemic response measures in March 2020. The market expects an additional 1-2 percentage point rate cut in 2025, with a 62% probability of a 0.25% cut in December. The Federal Reserve is guided by its dual mandate to promote maximum employment and maintain price stability (2% inflation target). In mid-2022, inflation briefly exceeded 9%, prompting the Federal Reserve to take aggressive rate hike measures, raising rates to the highest level in 20 years. As inflation gradually cools, the Federal Reserve is entering a new rate cut cycle. Interest rates, as the price of money, will affect the market through two main channels: 1) lowering borrowing costs, making it easier for market participants to access funds and reducing the burden of existing debt; 2) reducing the risk-free rate of return, prompting investors to seek other investment channels to increase their returns. U.S. interest rates have shown a structural downward trend over the past 50 years, from 8-10% in the 1980s to near-zero rates in the 2010s, and now back above 5%. Asset performance analysis: 1) The stock market (S&P 500) generally shows an upward trend after rate cuts, but may see exceptions during economic recessions; 2) Commodities have a more complex relationship with interest rates, influenced by factors such as inventory costs, lack of yield, and exchange rates; 3) Bond prices and interest rates have an inverse relationship; 4) While cryptocurrency data is limited, it has shown strong performance during rate cut cycles, such as a 537% increase in the 12 months following the March 2020 rate cut.
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