The US Federal Reserve cut interest rates again, sparking concern in global financial markets

On November 8, 2024, the Federal Reserve lowered the target range of the federal funds rate by 25 basis points to 4.50%-4.75%, which caused widespread concern in the global financial market. The rate cut is the second rate cut by the Federal Reserve this year, which contains complex economic considerations and far-reaching effects.

In its November statement, the Fed noted that recent indicators point to a continued steady expansion in economic activity. This may seem like a positive statement, but the changes in labor market conditions are worth pondering. The unemployment rate has risen since earlier this year, and while it remains low, the trend suggests a subtle shift in the dynamics of economic growth may be underway. The gradual easing of the labor market may be a signal of the evolution of the economic cycle, or it may be the result of a combination of other factors.

Inflation has made progress toward the Committee's 2 percent objective, but remains somewhat elevated. Inflation has always been an important indicator that central banks pay close attention to. Excessive inflation will erode the purchasing power of consumers and affect the stable operation of the economy. The Fed's interest rate cut may be weighing the relationship between economic growth and inflation pressure, trying to achieve stable economic development by adjusting interest rates.

This interest rate resolution was issued after Trump won the US election, and it is natural to pay attention to it. Politics and economics have always been closely linked, and the outcome of a general election often has a major impact on economic policy. The Trump administration's economic policy advocates "America first" as the core, emphasizing manufacturing reshoring and trade protection. The Fed's decision to cut rates may also be partly a response to the new political landscape to stabilize economic growth, boost employment and support the administration's economic policies.

A rate cut could reduce the attractiveness of dollar assets. When the Fed lowers interest rates, the dollar's yield falls relatively, and investors may seek higher-yielding assets. That could prompt money to shift to other markets, including emerging markets such as Chinese stocks. The inflow of money is expected to drive up the prices of risky assets and breathe new life into these markets. For China's stock market, the inflow of foreign capital may have some positive effects, boosting market activity and valuation levels.

On the other hand, however, changes in U.S. economic policy could also pose challenges to global trade and economic growth. As the world's largest economy, the adjustment of the US monetary policy will be transmitted to other countries through trade, investment and other channels. A rate cut could lead to a decline in the value of the dollar, which would affect the balance of international trade. For export-oriented countries, the depreciation of the dollar may reduce the competitiveness of their exports and affect economic growth. At the same time, the uncertainty of the global economy may also increase, and enterprises' investment decisions may be more cautious, thus affecting the economic recovery process.

Although the Fed's decision to cut interest rates may have a certain positive impact on the global financial market in the short term, the market still has a certain uncertainty about the future direction of the Federal Reserve's monetary policy. This uncertainty has troubled investors and increased the risk of volatility in the market. The Fed's future decisions will depend on a variety of factors, including the performance of economic data, the direction of inflation, and changes in the political situation.

In the context of global economic integration, central banks also need to pay close attention to the monetary policy trends of the Federal Reserve and formulate corresponding policy measures according to their own economic conditions. For emerging market countries, on the one hand, they should guard against the impact of capital flow, strengthen financial supervision and stabilize exchange rate; On the other hand, we should actively promote economic restructuring and improve the ability of the economy to resist risks.

In conclusion, the Federal Reserve's decision to cut interest rates on November 8, 2024 was an important event for global financial markets. It brings both opportunities and challenges. In the coming days, global financial markets will continue to pay close attention to the direction of the Fed's monetary policy and its impact on the global economy. In the complex and changing economic environment, countries need to find a path suitable for their own development and achieve stable economic growth and sustainable development.