The Federal Reserve Conducts the Fifth Rate Cut of the Year by 25 Basis Points
On October 29, local time, the Federal Reserve announced a reduction in the federal funds rate target range by 25 basis points to 3.75%-4.00%, marking the fifth rate cut since September 2024. This decision met market expectations, but Fed Chair Powell's cautious remarks at the news conference led investors to reassess the likelihood of further rate cuts in December.
Powell stated that although inflation has eased, it remains above target levels, and the data gaps caused by the government shutdown limit the basis for decisions. "We may need to remain patient in the face of limited information," Powell said. "Whether we continue to cut rates in December will depend on the latest developments in the labor market and price trends."
The latest Federal Open Market Committee (FOMC) statement also indicated that quantitative tightening (QT) will conclude on December 1, as the Federal Reserve enters a "stabilization period" of balance sheet adjustments to prevent further tightening of financial market liquidity.
Markets React Strongly: U.S. Stocks, Gold, and Bitcoin All Drop
Influenced by Powell's speech, U.S. stocks plummeted intraday; the Dow Jones turned negative, the S&P 500 index fell below key support, with the Nasdaq index barely closing with a slight gain. Tech stocks diverged, with Nvidia rising about 3%, surpassing a market value of $5 trillion; Apple closed with a market value exceeding $4 trillion for the first time, while Meta plunged over 8% after hours due to significantly lower-than-expected quarterly profits.
The bond market also experienced intense volatility. The two-year U.S. Treasury yield climbed to 3.59% at one point, reaching a nearly two-month high, reflecting increased market expectations of a slowdown in the pace of rate cuts. The dollar index strengthened in the short term, with the onshore renminbi retreating to around 7.10.
In the precious metals sector, spot gold fell below the $3,930/ounce threshold, with an intraday low of $3,915. Analysts pointed out that Powell's cautious tone weakened gold’s appeal as a safe haven, and it may remain under pressure in the short term. Meanwhile, the cryptocurrency market also suffered significant setbacks, with Bitcoin dropping nearly 4% within 24 hours, with a liquidation amount exceeding $560 million.
Powell Signals a "Pause", Increasing Policy Division
Several Federal Reserve officials have recently expressed differing views on the rate cut pace. Some members believe that while the current employment market is cooling, it remains resilient, and policy relaxation should be approached cautiously; while other officials worry that excessive tightening could trigger a recession.
The internal division within the Federal Reserve, coupled with the extended data hiatus, makes the outlook for the December meeting highly uncertain. Market data shows that investors’ expectations for another rate cut this year dropped from 90% pre-meeting to 65%.
Financial market analysts emphasize that the Federal Reserve's "forward guidance" will become a critical observation point in the coming months. Should any deviation occur in employment or inflation data, market expectations regarding the interest rate path could adjust rapidly.
Emerging Markets May See Capital Inflows
With the Federal Reserve entering a rate cut cycle, emerging market assets are gradually returning to the radar of investors. As the dollar weakens and U.S. Treasury yields decline, the appeal of emerging market currencies and bonds has significantly increased.
Analysts believe that some countries in Southeast Asia and Latin America, benefiting from higher real interest rate spreads and robust economic growth, may become focal points for capital inflows in the next phase. Should the Federal Reserve pause the rate cut cycle by the end of the year, this liquidity improvement may briefly slow, but the overall trend remains favorable towards risk assets.
