The negative impact of the Federal Reserve's November interest rate cut decision

Nowadays, the market's attention is closely focused on November 6, 2024, when the Federal Reserve is about to announce whether it will cut interest rates again, and the importance of this decision is infinitely amplified because it has already cut interest rates in September. If the interest rate cuts continue in November, it means that the Federal Reserve has officially started its interest rate cutting cycle, and its subsequent impact should not be underestimated.

1、 Review of the Federal Reserve's September interest rate cuts and the significance of initiating a cycle of interest rate cuts

The interest rate cut in September 2024 has sparked a lot of discussion in the economic field. At that time, the Federal Reserve chose to cut interest rates due to a comprehensive consideration of various economic factors. After experiencing a period of growth, the US economy is facing many challenges such as fluctuations in inflation data and changes in the structure of the job market. Although inflation has not experienced an uncontrollable surge, it continues to remain at a relatively subtle level, requiring the Federal Reserve to cut interest rates to provide a certain degree of economic stimulus to maintain the momentum of economic growth.

And once there is another interest rate cut in November, announcing the beginning of the interest rate cut cycle, it means that the Federal Reserve has a clear judgment on the current development trend of the US economy, that is, economic growth is facing significant pressure and needs to be supported through sustained monetary easing policies. The opening of interest rate cutting cycles often triggers a chain reaction of a series of economic variables, from the financing costs of enterprises to the consumption willingness of residents, from the real estate market to the stock market, and other fields, all of which will be affected to varying degrees.

2、 Analysis of the possibility of the Federal Reserve cutting interest rates in November

Based on current economic data, there is a certain possibility that the Federal Reserve will cut interest rates in November. Firstly, in terms of the job market, although the overall unemployment rate data remains at a relatively reasonable level, there have been signs of slowing job growth in some industries recently. For example, in some sub sectors of the manufacturing industry, layoffs often occur due to adjustments in the global trade pattern and fluctuations in domestic orders. This subtle change in the job market gives the Federal Reserve the incentive to stabilize the employment situation through interest rate cuts and encourage businesses to expand production and recruitment.

Secondly, inflation data further supports the possibility of interest rate cuts. The latest inflation indicators show that the Consumer Price Index (CPI) continues to rise below the target range set by the Federal Reserve. Although this avoids the risk of economic overheating caused by high inflation, low inflation also means that there is a certain degree of deflationary pressure on the economy. In this situation, interest rate cuts can stimulate consumption and investment, promote moderate price increases, and thus bring inflation levels back to a healthier range.

3、 The negative impact of interest rate cuts on the United States and the West

Cutting interest rates means a decrease in the cost of capital, and a large amount of funds will flow into asset markets such as stocks and real estate, driving up asset prices. In the short term, it seems that the economy is booming, but in the long term, once the excessive asset foam bursts, it will lead to a financial crisis, just like the subprime mortgage crisis in 2008, which will cause a devastating blow to the U.S. economy.

A lower interest rate environment will significantly reduce the returns on residents' savings, thereby encouraging them to consume and invest more. However, excessive consumption tendencies may lead to a sustained decline in residents' savings rates. When the economy faces unexpected situations that require residents to use their savings to sustain their lives or cope with crises, insufficient savings will make residents face greater economic difficulties.

Frequent interest rate cuts may trigger market concerns about US dollar credit. As the world's major reserve currency, the stability of the value of the US dollar is crucial. If the Federal Reserve continues to cut interest rates and causes the US dollar to depreciate too quickly, other countries may gradually reduce their dependence on the US dollar and seek other currencies or assets as reserves, which will fundamentally shake the international status of the US dollar.

In summary, the Fed's decision to cut interest rates on November 6, 2024 is crucial. The possibility of a rate cut is reasonable based on the current economic situation in the United States and globally. However, whether or not a rate cut is made, as well as the magnitude of the cut, it will have far-reaching impacts on the Western economy, including many negative effects. The global economic market is eagerly awaiting the final announcement of this crucial decision, and its subsequent economic development will largely depend on the policy direction of the Federal Reserve this time.