First interest rate cut in over four years! The Federal Reserve unexpectedly announced a significant 50 basis point rate cut.

Early Thursday morning Beijing time, the Federal Reserve unexpectedly announced a significant 50 basis point rate cut, lowering the benchmark interest rate from 5.25%-5.5% to a range of 4.75%-5%, marking the first rate cut in over four years. In the previous two years, the Federal Reserve successfully suppressed inflation by maintaining high interest rates but also increased borrowing costs for American consumers. This rate cut reflects the Federal Reserve's focus on the job market, especially in the current economic slowdown. In the past 14 months, the Federal Reserve has been able to control the most severe inflation problem in forty years through high interest rates. Since peaking at 9.1% in mid-2022, inflation has gradually decreased to 2.5% in August of this year, approaching the Federal Reserve's target of 2%. Federal Reserve officials also indicated that they expect to further lower the benchmark interest rate by 50 basis points at the November and December meetings. Four more rate cuts are expected by 2025, with two planned for 2026. In their statement, the Federal Reserve expressed confidence in overcoming inflation, stating that they "believe more strongly that inflation will continue to move toward the 2% goal". Despite the Federal Reserve's optimistic view on controlling inflation, many American consumers are still unhappy with high basic living costs such as food, gasoline, and rent. Former President Trump blamed the Biden-Harris administration for the skyrocketing inflation, while Vice President Harris countered by stating that Trump's promise to impose tariffs on all imported products would further raise prices. The rate cut by the Federal Reserve is expected to gradually reduce interest costs on mortgages, car loans, and credit cards, improving consumers' financial situations and encouraging more spending and economic growth. Homeowners have the opportunity to lower their monthly payments by refinancing at lower rates, and can also transfer credit card debt to lower-cost personal loans or home equity lines of credit. Businesses will also benefit from lower borrowing costs, promoting investment. According to a report by the National Association of Realtors, the average mortgage rate has dropped to a 18-month low of 6.2%, leading to a surge in refinancing demand. The next policy meeting of the Federal Reserve is scheduled for November 6-7, after the presidential election. While Trump may criticize the rate cut as political interference, reports suggest that some key Republican senators support the rate cut. Between 2022 and 2023, the Federal Reserve raised the benchmark interest rate eleven times to combat high inflation. With wage growth slowing down, the source of inflation pressure has gradually diminished. At the same time, the decline in oil and gas prices indicates that inflation will continue to slow down in the coming months. Consumers are also resisting high prices, forcing companies like Target and McDonald's to offer more discounts and promotions. However, after several years of strong job growth, employers have slowed down their hiring pace. The unemployment rate rose by nearly one percentage point from a half-century low point in April 2023 to a low of 4.2%. Normally, the unemployment rate continues to rise after reaching this level, but Federal Reserve officials and some economists point out that this increase in unemployment is more due to an increase in job seekers, especially new immigrants and recent graduates, rather than mass layoffs. The Federal Reserve is currently discussing the pace at which the benchmark interest rate should be lowered, aiming to neither hinder economic growth nor overly stimulate the economy. While the "neutral" level of interest rates is not clear, many analysts believe this rate may be between 3% and 3.5%. The dot plot shows a cumulative 100 basis point rate cut this year The median in the dot plot of the Federal Reserve shows a cumulative 100 basis point rate cut in 2024, with an expected rate cut of 50 basis points after the 50 basis point cut in September. The Federal Reserve is expected to cut rates by another 100 basis points in 2025, the same as the rate cut expected in the June dot plot. The Federal Reserve has made several significant 50 basis point rate cuts in history, including after the 1998 Asia financial crisis and Russian debt default, after the bursting of the internet bubble in 2001, during the 2008 financial crisis, and during the 2020 COVID-19 pandemic. A 50 basis point rate cut by the Federal Reserve typically signals significant economic challenges where central banks need to act swiftly to avoid a larger economic crisis. This significant rate cut aims to lower borrowing costs, stimulate consumption and investment, and help the economy recover from a recession or avoid deeper economic challenges. Nick Timiraos, the "Fed Whisperer", stated in a recent article: "We are committed to maintaining our economic strength." "This decision reflects our growing confidence that by appropriately adjusting our policy stance, we can maintain strong momentum in the labor market." While some Federal Reserve officials have argued in recent weeks that the economy is not weak enough to warrant a 50 basis point rate cut, others have concluded that a cooling in the labor market this summer provides reason to cut rates further, as the Federal Reserve is effectively making up for lost time. Gold prices briefly reached record highs Following the announcement, gold prices briefly reached record highs. Spot gold briefly broke through $2600, but started to fall back during Powell's press conference, with US stocks turning lower at midday. Comex gold also briefly rose over 1% to a historic high of $2627.2 before reversing. Gold has seen significant increases this year, with gains exceeding 25% and repeatedly hitting record highs. The rise in gold prices at the start of 2024 was mainly driven by demand from emerging markets, notably from central banks, Asian consumers, and investors. However, in recent months, market focus has shifted entirely to the Federal Reserve's monetary policy and the outlook for the US economy. As a non-yielding asset, gold typically performs well in low-interest rate environments, while concerns of economic recession often drive investors to view gold as a safe haven asset. With the Federal Reserve announcing a rate cut, volatility in the gold market has subsided. Some analysts point out that the gold market will return to more traditional trading patterns, especially the long-standing inverse relationship between gold prices and real yields. In recent years, despite rising interest rates, gold prices have remained at historic highs, breaking the previous pattern. This is mainly due to massive central bank purchases and sharp growth in Asian investor and consumer demand, supporting gold prices.Main factors.Je suis n et j'ai grandi en France.