Fed Cuts Rates by 50 Basis Points, Largest Reduction Since 2020

PANews, September 21: According to the Beijing Business Daily, the Federal Reserve has announced a reduction of the federal funds rate target range to 4.75% to 5%, marking a 50-basis-point cut. This is the first rate cut by the Fed since 2020. The move is larger than anticipated by markets.

Some analysts believe that historically, unless facing a major economic crisis, the Fed rarely cuts rates by 50 basis points when starting a new easing cycle. This suggests the Fed is employing more aggressive monetary easing measures to address potential downside risks to the US economy. The move reflects the Fed's heightened vigilance towards the current economic situation, particularly with slowing consumption, shrinking manufacturing, and a weakening job market, as they seek to achieve a "soft landing" and avoid a deeper recession.

In a rate cut environment, a loose monetary environment usually leads to an abundance of liquidity, which offers a relatively favorable growth space for high-risk assets. Some analysts point out that virtual assets, due to their high volatility and strong risk appetite, are becoming a significant choice for investors seeking higher returns. Especially under the Fed's continued loose policy, investor concerns about the depreciation of fiat currency could further drive increased demand for virtual assets.

Generally, the short-term impact of rate cuts on asset prices depends largely on market interpretation. A rate cut could be seen as a warning sign of potential economic problems or a positive expectation of liquidity injection. Fed rate cuts typically lower borrowing costs, releasing more liquidity into the market, which is often seen as a positive, driving up prices of risk assets. However, if markets perceive the cut as overly aggressive or untimely, it may signal deeper structural economic issues such as slowing economic growth, a weakening job market, or rising inflationary pressure. These factors could trigger investor concerns, leading to price volatility or even decline in asset prices.