On September 30th local time, Federal Reserve Chairman Powell delivered a speech at the annual meeting of the National Association for Business Economics in Nashville, Tennessee. In his speech, he stated that the recent policy of cutting interest rates by 50 basis points should not be interpreted as a sign that future measures will be equally aggressive. In fact, this indicates that the scale of the next steps will be smaller. If economic data remains consistent, there may be two more interest rate cuts this year, with a total magnitude of 50 basis points.
Powell's latest statement
In the Q&A session after his speech, when asked about the actions the Federal Reserve will take at the next FOMC meeting in November, Powell replied that if the economic performance is consistent with current forecasts, the Fed will cut interest rates twice this year, each by 25 basis points.
The comment pointed out that although this only states the latest dot matrix display content released after the September meeting, Powell's mention of this may mean that he told the market that the total interest rate cut for the remaining time of this year should be 50 basis points, rather than the current market expectation of about 75 basis points.
In his speech, Powell expressed confidence in the US economy and believed that inflation would continue to cool down. He stated that the economic conditions in the United States provide the possibility of further easing inflation, and the policy stance will tend towards neutrality over time.
Powell mentioned the GDP and consumer personal income revisions released by the US Department of Commerce last week. These data have all been revised upwards, with Powell stating that the income correction is "very significant", which eliminates the "risk of economic downturn".
He stated that looking ahead, if the US economy develops roughly as expected, policies will move towards a more neutral stance over time.
Powell said, "Although the task is not yet completed, we have made great progress towards the goal of a soft landing
Powell also stated that the US labor market is stable, but the situation has indeed cooled significantly over the past year. "We believe that we do not need to see further cooling of the labor market to achieve the 2% inflation target
His latest interpretation of the 50 basis point rate cut in September, which the market is concerned about, is that "the decision to cut interest rates by 50 basis points in September reflects our growing confidence that, by adjusting our policy stance appropriately, the strength of the labor market can be maintained in an environment of moderate economic growth and sustained inflation falling to our targets
Two weeks ago, the Federal Reserve announced a 50 basis point interest rate cut, lowering the target range for the federal funds rate from 5.25-5.5% to 4.75-5%. This is also the first interest rate cut by the bank since March 2020, indicating the beginning of a monetary easing cycle.
At the same time as announcing the interest rate decision, the Federal Reserve released a "dot matrix" of interest rate forecasts, which showed that the median expectation of long-term interest rates among 19 policy makers fell between 2.75% and 3%, which is 200 basis points lower than the current level.
Policy makers also expect that the Federal Reserve will cumulatively cut interest rates by 50 basis points within 2024. But Powell pointed out that 'we have not set any predetermined route', and policymakers will continue to make decisions based on the latest economic data one by one.
In addition, this year's voting committee and Atlanta Fed Chairman Bostic stated that if the US labor market weakens, he is open to another 50 basis point interest rate cut.
The market reaction is intense
After Powell's speech, the market quickly re priced the expectation of a rate cut at the Federal Reserve's November meeting.
Traders quickly lowered their bets on the overall rate cut by the Federal Reserve. The market expects the probability of the Federal Reserve cutting interest rates by 50 basis points in November to significantly decrease from 53.3% to 36.2%.
Futures market pricing suggests that the Federal Reserve is more likely to act cautiously and cut interest rates by 25 basis points at its meeting on November 6-7. But traders believe that the rate cut in December will be more aggressive, with a 50 basis point cut.
The market generally believes that Powell did not make any statements to stimulate market bets that the Federal Reserve will cut interest rates by another 50 basis points, but he made it clear that the Fed will take action based on data.
The US stock market once fell across the board, but towards the end of the trading session, the three major indexes collectively rose and turned red. As of the close, the Dow Jones Industrial Average rose 0.04%, with a cumulative increase of 1.85% in September; The Nasdaq rose 0.38%, with a cumulative increase of 2.68% in September; The S&P 500 index rose 0.42%, with a cumulative increase of 2.02% in September. Most popular technology stocks have risen, with Apple up over 2% and Google up over 1%. Freight and logistics, consumer electronics, Internet content and information rose the most, with Yingxi Group up more than 9%, Trump Media Technology Group up nearly 9%, FedEx up more than 2%, and UPS up more than 1%. The precious metals and solar energy sectors experienced the largest decline, with Koldaeron Mining falling over 3%, while First Solar, Southern Copper, and McMoran Copper fell over 2%.
In terms of Chinese concept stocks, the Nasdaq China Golden Dragon Index surged, fell back, and rose 0.45%. It rose 29.60% in September, closing at its highest level in nearly a year. Among them, Fangduoduo surged 146%, Kaixin Automobile surged 117.11%, Futu Holdings surged 11.64%, TAL Education Group rose 9.63%, New Oriental rose 3.23%, NIO rose 2.45%, and JD.com rose 0.25%; Pinduoduo fell 0.42%, Ideal Auto fell 0.50%, Alibaba fell 1.13%, Tencent Music fell 1.87%, and Xiaopeng Motors fell 4.25%.
China International Capital Corporation (CICC) previously analyzed that currently, the Federal Reserve's "unconventional" interest rate cut starting at 50 basis points will still make the market worry about whether the future growth of the United States will face greater pressure in the short term.
Therefore, with the expectation that US bonds and gold cannot be counterfeited yet, there may still be some holding opportunities, but the short-term space is limited. If subsequent data confirms that there is not much economic pressure, then these assets should be withdrawn in a timely manner; In contrast, what is more certain are the short-term bonds that directly benefit from the Fed's interest rate cuts, the gradually repaired real estate chain (even driving China's related export chain), and copper, but it still needs to wait for further data verification.