How will the Fed's interest rate cut affect the market? Interpretations from 15 securities firms.

On the early morning of September 18, as scheduled, the Federal Reserve of the United States cut interest rates by 25 basis points, a move that immediately attracted intensive interpretation from domestic selling institutions. As of the time of publication, more than 15 securities research institutions have released related research reports, with "meeting expectations" becoming the mainstream judgment, and the consensus that "interest rate meetings in October and December are expected to each cut rates by 25 basis points." Most securities firms believe that this rate cut marks the beginning of a new round of preventive rate cuts by the Federal Reserve, but there is a clear divergence between policy statements and internal decisions, and the future path of interest rates still remains uncertain. For the expected future rate cuts and pace, institutions generally expect another 50 basis point cut within the year, but the magnitude of rate cuts in the medium to long term may not be as much as the market previously expected. There is a differentiation in the assessment of the future outlook of the U.S. economy, with a soft landing being the mainstream expectation, but some securities firms warning that excessive easing may lead to a risk of stagflation. Below are the key viewpoints of various selling institutions: CITIC SEC Chief Analyst at the Overseas Research Institute, Li Chong, said that the preventive rate cut landed as expected, and the path of interest rates next year is still unclear. It is expected that the Federal Reserve will cut rates by 25bps at the interest rate meetings in October and December. CMSC Chief Macro Analyst, Zhang Jingjing, said that the dot plot and SEP indicate a 75bp rate cut this year and 25bp rate cuts in the following two years, which is significantly lower than the market's expectation of 75bp rate cuts in each of the following two years. In the short term, risk assets may enter a period of volatility, but the outlook for U.S. stocks remains bullish in the medium term. China Securities Co., Ltd. Chief Economist and Chief Asset Manager, Qian Wei, believes that the future rate cut space should be at least down to the neutral range of 3-3.5%, but more is preferred. Financial conditions have begun to improve in the middle of the year, and next year is the observation window. Real estate and manufacturing will benefit first. In the short term, asset trends are bullish, and in the medium term, U.S. stocks and U.S. bonds still have room to rise. A-share sentiment is positive, with greater sensitivity to Hong Kong stocks under improved overseas liquidity. Guotai Haitong Chief Macro Analyst, Liang Zhonghua, said that a new round of preventive rate cuts has officially begun, with two more rate cuts expected within the year, but the pace of long-term rate cuts remains slow. With the Federal Reserve's focus on short-term job risks outweighing inflation risks, expectations for rate cuts in the year have increased, but under the preventive rate cut tone, the pace of long-term rate cuts is expected to remain slow. Given the softening of job market data in September, Huatai's research report supports a rate cut in October, increasing the number of expected rate cuts by the Fed in the year from 2 to 3. The Fed maintains a dovish stance, and combined with the resilience of economic fundamentals, is expected to continue to support global liquidity and stock market performance. CICC believes that the Federal Reserve has responded well to market concerns while maintaining restraint. There is significant divergence among decision-makers on the next rate cut. It is expected that the Fed may cut rates again in October. Excessive monetary easing may lead the U.S. economy into a "stagflation" dilemma. CITIC SEC Li Chong: Downplaying the meeting's guidance on next year's interest rate path Li Chong mentioned in the research report that the Federal Reserve cut interest rates by 25bps at the September 2025 meeting, in line with market expectations. Li Chong believes that it will not be until the final selection of the new Federal Reserve chair in 2026 that the path of interest rates will become clearer. On the market side, after the rate cut, U.S. bonds demonstrated the characteristics of "buy the rumor, sell the fact," and the U.S. stock market experienced a rebound. It is suggested to downplay the guidance on next year's interest rate path from this meeting, with the anticipation that the U.S. dollar may remain weak in this round of rate cuts trading, and gold is expected to continue to perform well. How will the Fed's rate cut affect the Hong Kong stock market? A CITIC SEC research report stated that in the short term, tech, consumer discretionary, and healthcare sectors are expected to benefit, and in the medium to long term, if China's policies align with the U.S. in implementing easing measures, a flow of foreign investment into Hong Kong stocks may be seen. Currently, there is a broad space for increased foreign investment, and with China's stabilizing growth policies and improving fundamentals, the core asset allocation value of Hong Kong stocks is highlighted. CMSC Zhang Jingjing: Risk assets may enter a period of widespread volatility Zhang Jingjing mentioned in the research report that Powell has described this rate cut as a "risk management rate cut," based on the preventive rate cut due to weak nonfarm data. The dot plot shows a large internal divergence at the Federal Reserve, increasing uncertainty about the future. In addition, the dot plot and SEP imply a cut of 75BP this year and 25BP each in the following two years, which is significantly lower than the market's expectation of a 75BP cut each this year and next. Regarding assets, Zhang Jingjing believes that in the short term, risk assets may enter a period of widespread volatility, but the medium-term outlook for U.S. stocks remains bullish. First, the market had overpriced expectations of the rate cut by the Federal Reserve, leading to a post-meeting rise and then fall in U.S. bonds, commodities, and stocks. Second, the rate cut factor is temporarily halted, with attention turning to the results of the U.S.-China trade talks in the short term. Third, medium-term attention should be paid to Trump and the U.S. Congress's attitudes towards the new fiscal bill for the 26 fiscal year, with expectations that the bubble in the U.S. stock market may continue until the end of next year, providing opportunities for adjustments. China Securities Co., Ltd. Qian Wei: Increased sensitivity of Hong Kong stocks under improved overseas liquidity In the research report, Qian Wei provides more direct and sharp interpretations of eight aspects of market attention: 1. How much is the space for future rate cuts? At least down to the neutral range of 3-3.5%, but leaning towards more; 2. What is the probability of a U.S. economic recession? The benchmark is still a soft landing; 3. How does the risk of inflation look? Maintaining the judgment of a one-time impact of tariffs; 4. Has the Fed's independence been affected? Voting differences are significantly smaller than expected, and extreme rate cut strategies by Trump may not be recognized; 5. When will the effects of rate cuts be reflected? Financial conditions have begun to improve since the middle of the year, and early next year is the observation period; 6. Which industries will benefit first? Real estate and manufacturing; 7. How do asset trends look? In the short term, a bullish scenario; in the medium term, U.S. stocks and bonds still have room to rise; 8. How will the domestic market be impacted? A-share sentiment is positive, with increased sensitivity of Hong Kong stocks under improved overseas liquidity. Guotai Haitong Liang Zhonghua: Slow pace of long-term rate cuts Liang Zhonghua pointed out in the research report that overall, the 25BP rate cut at the September meeting of the Federal Reserve was in line with expectations, but more importantly, it signifies the beginning of a new round of rate cuts, with the Fed judging that the short-term risks of employment are greater than the risks of inflation. The expected magnitude of rate cuts within the year has increased, but under the preventive rate cut tone, the pace of long-term rate cuts is still slow. Given the Federal Reserve's focus on short-term job risks outweighing inflation risks, the likelihood of rate cuts continuing to progress in the year is high. It is expected that there will still be two rate cuts within the year, but the pace of long-term rate cuts is expected to be slow. Liang Zhonghua expects a slower downslide in U.S. bond rates, with continued support for U.S. stocks and the U.S. dollar index experiencing a decline followed by volatility. CICC: Excessive monetary easing may lead the U.S. economy into a "stagflation" dilemma CICC's research report stated that the 25 basis point rate cut by the Federal Reserve in September was in line with market expectations. The Fed responded well to market concerns while maintaining restraint. However, the expected 50 basis point rate cut did not occur, indicating significant divergence among decision-makers on the next rate cut. Looking ahead, due to the weakness in employment data, CICC expects the Fed to cut rates again in October, but after that, the rising inflation may raise the threshold for further rate cuts, and the space for monetary easing may be limited. The underlying problem of the U.S. economy is not lack of demand but rising costs. Excessive monetary easing may not solve the employment issue but could exacerbate inflation, leading to a "stagflation" dilemma in the economy. Huaxi Sunfu: Preventative rate cuts in the face of contradictions Sun Fu, Chief Analyst at Huaxi Research Institute, released a research report stating that the Federal Reserve cut rates by 25bp in September, a rate cut that was in line with market expectations. The market had already priced in this rate cut. The dot plot indicates two more rate cuts during the year (50BP), with only one rate cut expected in 2026. Powell stated that this rate cut was for risk mitigation, with a 25 basis point rate cut implying concerns about slowing economic growth and increasing job risks. Sun Fu also mentioned in the report that the meeting highlighted conflicting differences: on one hand, the meeting statement and the predictions in the dot plot are different, with the statement explicitly mentioning "slowing economic growth" and "slower jobs growth," but the dot plot forecasts have raised economic growth expectations and lowered unemployment rate expectations; on the other hand, there is a divergence between market expectations and the Federal Reserve's dot plot guidance, with the market generally believing that the Federal Reserve will cut rates twice more within 2025 and three more times in 2026. Zheshang Li Chao: "Risk management-style" rate cuts tend towards hawkish Li Chao mentioned in the research report that the Federal Reserve cut rates by 25BP this month, and the dot plot indicates two consecutive rate cuts at the remaining two interest rate meetings this year. However, Powell stated after the meeting that the September rate cut was a "risk management-style" cut. This was one of the most important statements in the meeting. In Li Chao's interpretation, the above statement tends towards hawkishness, indicating that the Federal Reserve has not fully confirmed the downward risks in the job market. This rate cut was more of a "preventive rate cut." In other words, it is still questionable whether there will be consecutive rate cuts in the future. Accordingly, Powell also pointed out that the Fed is currently in a state of gradual decision-making for upcoming meetings and cannot accurately preset the policy path as per the dot plot. Overall, although the dot plot indicates that there is still room for two rate cuts within the year, Li Chao believes that there is still a possibility of reversal. There are two main reasons for this: firstly, after the core momentum of the U.S. economy shifts from consumption to investment, the central hub of nonfarm employment may decline, but a weak nonfarm sector does not mean a weak economy, and inflation resilience may be stronger than expected; secondly, although the core of nonfarm employment may decline, the expulsion of illegal immigrants may shrink the labor supply, which may not necessarily lead to an increase in the unemployment rate. If the unemployment rate remains stable, consecutive rate cuts may not necessarily be realized. In addition, Li Chao emphasized the need to be vigilant about the possibility of stopping balance sheet reduction within the year. In addition, Luo Zhiheng, Chief Economist and Director of the Research Institute at Yuekai Securities, stated that the signals released in the meeting highlighted concerns about the slowing job market, opening the door for further rate cuts. It is expected that at the upcoming October and December meetings, the Federal Reserve is likely to cut rates by 25 basis points each time. The reopening of the rate cut cycle will help support demand and employment but may not reverse the overall economic slowdown and may delay the decline in inflation. Short-term benefits may be seen for U.S. bonds and gold, with liquidity supporting U.S. stocks but profit potentially under pressure, and the U.S. dollar facing further weakening. Caitong's Chief Economist, Sun Binbin, stated that the FOMC decision was as expected, with a dovish tone focusing on job risks. In this decision, only the new board member, Milan, voted against and favored a 50 basis point rate cut, indicating that the internal divergence at the Federal Reserve is mainly in the speed of rate cuts rather than the direction. The dot plot suggests more rate cuts, but the press conference speech leaned towards hawkishness. In the short term, U.S. bonds may show a bullish trend, while the U.S. dollar may remain weak. Guosheng Securities' Chief Economist, Xiong Yuan, released a research report stating that historically, when the Federal Reserve cuts rates in a non-recessionary environment, it may drive U.S. stocks and gold prices up and U.S. bond yields and the U.S. dollar down. However, considering that market expectations are already high, the subsequent impact may not be too significant. For the domestic market, this rate cut by the Federal Reserve will open up further room for easing in domestic monetary policy, increasing the possibility of a rate cut in the fourth quarter, but the specific pace and magnitude will mainly depend on the performance of the domestic economic fundamentals. This article was originally published by "CaiLian Press" and edited by Li Fo for GMTEight.