After 9 months, the Fed cuts interest rates! Impact geometry?

At the end of the two-day monetary policy meeting, the U.S. Federal Reserve Board announced on Monday that it would lower the federal fund interest rate target range by 25 basis points from 4.00% to 4.25%, the first rate reduction since December 2024.

As soon as the news came out, investors began to evaluate the Fed's interest rate decision and forecast, and U.S. stocks were moved by the news. At the same time, whether the Federal Reserve can maintain its independence has renewed concerns.

Growth in employment slows risks balance

Powell: It's a tricky situation

The Federal Open Market Commission, the Federal Reserve¡¯s decision-making agency, issued a statement on 17 July that U.S. economic activity growth slowed in the first half of this year, employment growth slowed, unemployment rate rose slightly, inflation rose and remained high to a certain extent. The committee sought to long-term employment maximization and 2% inflation rate. The uncertainty about the economic outlook remains high. The committee noted the risks faced by the task and judged the downward risk of employment had increased. In order to support the committee¡¯s goal and consider the shift in risk balance, the committee decided to lower 25 base points from the federal fund¡¯s target rate range to 4.00% to 4.25%.

The Fed forecasted another 50 basis points of interest rate cuts by the end of the year and another 25 basis points of interest rate cuts annually over the next two years.In addition, the Fed released its latest economic outlook forecast on 17th, in which a "point map" shows that nine of the 19 Federal Reserve officials expect to cut interest rates twice this year, two expect to cut interest rates once more, and six think they won't cut interest rates further.

Following a monetary policy meeting on the 17th, Fed Chairman Powell said at a press conference at the Fed headquarters: ¡°In the short term, inflation risk is upward and employment risk is downward ¨C this is a tough situation. When our goals conflict like this, our framework requires us to balance between the two aspects of the dual mission. As the downward risk facing employment increases, the risk balance has changed.¡±

17th Anniversary Increase.

On the 17th, after the Federal Reserve cut its benchmark interest rate, the U.S. stock market closed mixed. The Dow Jones Industrial Average closed up 260.42 points, or 0.57%, after briefly turning lower; The S&P 500 closed down 0.1%; The Nasdaq Composite Index closed down 0.33%.

In addition, the US dollar index fell 0.4 percent after the Fed announced its decision, but after Powell¡¯s press conference, the index wiped out the drop and rose 0.3 percent.

The stock market has rebounded in recent weeks due to expectations that the Fed will lower interest rates, but the results are still not enough to trigger significant volatility in the stock market.

Trump¡¯s Chief Economic Advisor

How does the Fed maintain its independence?

Since taking office in January this year, US President Trump has continued to pressure the Federal Reserve to cut interest rates, believing that lowering borrowing costs will promote economic growth. Trump resorted to various means of pressure, including criticizing the Federal Open Market Committee and Powell and trying to fire Powell, "inserting" his chief economic adviser Stephen Miran into the committee (Milan served the Fed while still retaining his position in the Trump administration), and trying to remove Fed Governor Lisa Cook. A series of actions have caused the outside world to worry that the Federal Reserve will lose its independence under pressure.

On the 17th, at a press conference, a reporter asked Powell how the Federal Reserve can maintain its independence in the eyes of the public after Milan joined. Powell only gave a short answer, saying, "I have nothing to share beyond our firm commitment to maintaining independence."

How will it affect Chinese assets?

Yang DeLong, chief economist at the Open Source Fund, predicts that the Fed¡¯s interest rate cuts could trigger a global central bank rate cuts. While China¡¯s benchmark interest rates are already at a lower level, there is little space for central bank cuts, but there is still some room for relaxation, such as lowering LPR and MLF interest rates, or liquidity release by lowering allowances. If the currency is continued to be relaxed and the interest rate is kept very low, it may form a boost to the A stock market and drive the second wave of market offensive. Yang DeLong said that the Fed¡¯s interest rate cuts could be a turning point in the market, helping A share¡¯s ¡°nine-century¡± situation to come.

According to the analysis, with the Federal Reserve's interest rate reduction, and the Trump administration's tariff policy to the US economic shock gradually revealed, the dollar index will also be subject to some downward pressure, which will bring up value momentum for the RMB. Combined with the external fluctuations in the fourth quarter, the impact on China's exports will gradually appear, and the timely acceleration of the reverse cycle adjustment policy will ensure the economic operation is basically stable, providing important internal support for the RMB exchange rate.

Source: Economic Information Daily, China Economic Net