Fed Announces 50 Basis Point Rate Cut

• Article
• 2024-08-04
• 17 Comments

Finally, it has arrived.

The Federal Reserve announced a rate cut of 50 basis points, lowering the U.S. federal funds rate from 5.25%-5.5% to 4.75%-5%, marking the first rate cut in four years.

However, this rate cut by the Fed is quite peculiar; a 50 basis point reduction at the first attempt is very rare.

Furthermore, within the Fed, there were 11 votes in favor of a 50 basis point cut and one vote in favor of a 25 basis point cut.

It is also very unusual for a Federal Reserve governor to explicitly oppose such a move.

It's worth mentioning that just a few days before the Fed's rate cut announcement, several U.S. senators directly warned the Fed to quickly cut rates by 75 basis points, which is even more rare.

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This is sufficient to indicate that the U.S. is very eager for a rate cut, especially Wall Street capital.

Although the economic data released by the U.S. is not enough to support a 50 basis point rate cut, the true state of the U.S. economy is best known to them.

After intense competition and game-playing among various U.S. forces, they finally decided on a 50 basis point rate cut.

It is clear that Wall Street has successfully pressured the Fed, which has made concessions and compromises.

This suggests that the U.S. economy has likely fallen into a recession, and if it does not cut rates, there may be internal problems.

The U.S. is so eager for a rate cut, yet there are still many people in the country who insist that the Fed will not only not cut rates but will also raise them.

Do these people feel their faces are swollen now?

Now that the Fed has started to cut rates, will funds flow back to the country next?

How will the domestic real estate and stock markets go?

I believe there will still be a group of people who say that even if the Fed cuts rates, funds will not flow back to the country.

These people are still the ones who previously said the Fed would raise rates.

Critics can always find a place to criticize, and no one can stop them.

According to the Fed's dot plot, there will be a 100 basis point rate cut by 2024, so there will be another 50 basis point cut before the end of the year, and another 100 basis point cut in 2025, reducing the benchmark rate to around 3%, and to around 2% in 2026.

Regardless of how much the Fed cuts rates next year or the year after, at least the Fed has opened the curtain on the global rate cut cycle, which provides us with more room for maneuver for our rate cuts.

Before the Fed cut rates, we were more cautious about rate cuts; cutting too much could trigger capital outflows, after all, the interest rates in the U.S. were high.

Now that the Fed has cut rates, we can gradually start to cut rates more freely.

Some may say that even though the U.S. has cut rates, it is still at a high interest rate of 4.75%, how can funds flow back?

First of all, the Fed has started to cut rates, and this expectation is very important, with more cuts to come; secondly, do not forget the role of exchange rates.

In the long term, the dollar will fall, and the yuan will appreciate.

Considering these factors, it is certain that some funds will gradually flow back to the country.

It can be anticipated that in the next few years, a global flood of money will become a reality.

Rate cuts are a way to release liquidity into the market.

U.S. debt has already reached 35 trillion U.S. dollars.

Whether it is Trump or another winner, the outcome of a massive flood of money cannot be changed.

Flooding not only saves the economy but also dilutes debt.

Look at how high the debt of countries around the world is now.

The U.S. is going to flood the market, and Europe is no exception.

The EU has already started to cut rates, and most countries will start to cut rates next.

The global flood of money is on the way, and no one can stop it.

When there is more and more money in the market, asset prices will naturally rise.

Where the funds flow, the asset prices there may rise, and there will be opportunities for wealth.

However, the key question is: where will the funds flow?

Real estate, stock market, gold?

First, let's look at the real estate market.

Do not have too high expectations.

Housing prices are related to many factors, such as supply and demand, residents' income, new births, urbanization rate, expectations for the future, and so on.

The real estate market that can still be considered high-quality assets in the country is first the core areas of the four first-tier cities, and then the core areas of second-tier cities.

As for the real estate market in third and fourth-tier cities, there is no need to look.

The division of the real estate market will be beyond imagination.

So-called high-quality assets have nothing to do with the vast majority of ordinary people.

The starting price of a property in the core area of Beijing, Shanghai, and Guangzhou is tens of millions, which keeps ordinary people out.

Future real estate investment will be more participated by the rich.

Instead of looking at when housing prices will rise, it is better to look at when housing prices will stop falling, and also to look at when we will cut rates, the strength of the cuts, and when our residents' income will rise, and when market confidence will be restored, and so on.

In short, continue to observe.

Next, we are likely to reduce the interest rates on existing mortgages, which is a relief for those with mortgages, reducing repayment pressure, and this also helps to enhance the desire to consume.

As for the stock market, the author suggests not to rush and continue to observe the performance of global assets and our related measures.

As for gold, in fact, before the Fed cut rates, the rise in gold was already trading on the expectation of rate cuts, but after the rate cut, the trend of gold has become less clear.

Overall, the impact of the Fed's rate cut on the global economy is significant, opening the global rate cut cycle, but whether asset prices will rise or fall still depends on the subsequent performance.

It is too early to make a conclusion now.

For us, it is a relief, but the recovery of market confidence still depends on our own actions and measures.