What does the Fed cut interest rates by 25 basis points mean
4hw.com.cn: on the first day of August, the market ushered in heavy news. In the early morning of August 1, Beijing time, the Federal Reserve announced a 25 basis point cut in interest rates and lowered the target range of the federal funds rate to 2.00% - 2.25%, in line with market expectations. It is worth noting that this is the first interest rate cut by the federal reserve after 10 years, and also marks the end of the current round of monetary policy tightening cycle started by the Federal Reserve in 2015.
The Federal Reserve announced a 25 basis point cut in interest rates for the first time in a decade
The policy direction of the Federal Reserve has changed abruptly in recent years, from the "gradual interest rate increase" two or three years ago to the "suspension of interest rate increase" and "patience" at the beginning of this year, and then to the recent "position of taking appropriate action to maintain economic expansion".
On the evening of July 10, Beijing time, Fed chairman Powell made dove remarks in congressional testimony, further strengthening the market's expectation of the Fed's interest rate cut in July. Powell issued a semi annual monetary policy testimony to the Financial Services Committee of the house of Representatives, saying that as the US economy is facing a series of uncertainties and the overall economic growth has "slowed down", the Federal Reserve will take "appropriate" actions to support the demand for economic growth, suggesting that the Federal Reserve may cut interest rates.
In addition, the minutes of the regular monetary policy meeting in June released on the same day (July 10) showed that many participants believed that interest rate cuts could provide a 'buffer' for the negative impact on the U.S. economy in the future.
On August 1, Beijing time, after the two-day policy meeting, the Federal Reserve announced a 25 basis point cut in interest rates and lowered the target range of the federal funds rate to 2.00% - 2.25%. Jianghai securities analysis said that whether from the information disclosed in the speech of Fed officials or from the current performance of U.S. economic fundamentals, the Fed's interest rate cut is a preventive interest rate cut to prevent the potential downward risk of economy and inflation. At present, the U.S. economy has not shown signs of recession either from the perspective of employment or inflation. Therefore, there is no reason for the Federal Reserve to start a easing cycle due to the risk of economic recession.
Why only 25 basis points instead of 50 basis points? CICC analysis said that the U.S. economic data is not so bad and does not support radical interest rate cuts. Judging from the recent data released, most US economic data are better than expected. After the relaxation of financial conditions, the US consumption momentum recovered, the labor market was also relatively healthy, and the new non-agricultural employment in June was much better than expected. In addition, there are few voices of Fed officials supporting the 50 basis point interest rate cut, and most officials believe that the 50 basis point interest rate cut is "too radical".
Before the "boots" landed, trump seemed dissatisfied with the interest rate cut signal released by the Federal Reserve. On the evening of July 29, he wrote on his official twitter that the Fed's interest rate had been 'raised' too early and too much, and a small interest rate cut was not enough.
The last interest rate cut by the Federal Reserve dates back to December 2008. Since then, the Federal Reserve has gradually revised its monetary policy, withdrew from easing, announced an interest rate increase of 25 basis points on December 16, 2015, and the Federal Reserve began to enter an orderly interest rate increase cycle.
Last year, the Federal Reserve raised interest rates four times. US President trump publicly expressed dissatisfaction with Powell on many occasions. He believed that the Federal Reserve made a huge mistake last year and should cut interest rates now. He accused last year's interest rate increase of hindering US economic growth and affecting the performance of the stock market. In 2019, the Federal Reserve has pressed the "pause button" for raising interest rates twice in January and March respectively, keeping the benchmark interest rate in the range of 2.25% to 2.5%.
In addition to the Federal Reserve, according to incomplete statistics of China Singapore Jingwei client, about 12 central banks around the world have launched interest rate cutting measures in the past three months.
On May 8 this year, the New Zealand Federal Reserve began to cut interest rates by 25 basis points to 1.5%. This is the country's first interest rate cut since November 2016 and the lowest benchmark interest rate in its history. This move is also regarded by some people as the first shot in the global interest rate cut tide.
In the same week as New Zealand's interest rate cut, the central banks of Malaysia and the Philippines also began to relax monetary policy: the Central Bank of Malaysia cut the overnight policy interest rate by 25 basis points to 3%; The Bank of the Philippines cut its key interest rate by 25 basis points to 4.5%, the first rate cut since 2016.
On June 4, the RBA also announced a 25 basis point interest rate cut to 1.25%, the lowest level in history. This interest rate cut is the first time the RBA has cut interest rates since August 2016.
On June 6, the Central Bank of India announced a 25 basis point interest rate cut to 5.75%, the third interest rate cut in the year.
On July 18, the Bank of Korea decided to cut the benchmark interest rate by 0.25 percentage points to 1.5%, and cut the economic growth forecast in 2019 from 2.5% to 2.2%. This is the first time that the Bank of Korea has cut the benchmark interest rate in three years.
On July 26 local time, the Central Bank of Russia announced that it would cut the benchmark interest rate by 25 basis points to 7.25%, the lowest level in a year.
In July, the Central Bank of Indonesia, the Central Bank of South Africa, the Central Bank of Ukraine and the Central Bank of Turkey announced to cut the benchmark interest rate.
In addition, on July 25 local time, the European Central Bank also held a monetary policy meeting. It is expected that the key interest rate will 'maintain or be lower than the current level' at least until the first half of 2020. This is the first time since June 2017 that the European Central Bank has clearly released the signal of possible interest rate reduction in its monetary policy statement. Analysts expect the European Central Bank to cut interest rates by 10 to 20 basis points in September and restart quantitative easing measures. (Zhongxin Jingwei)
Many central banks followed the pace of the Fed's interest rate cut, and the stock markets of Japan and South Korea fell at the opening
The Federal Reserve announced in the early morning that it would cut interest rates for the first time in 10 years. Following the decline of US stocks, the Nikkei 225 index fell 0.76% and the Korean Kospi index fell 0.57%.
In the interest rate resolution announced early this morning Beijing time, the Federal Reserve cut the federal funds rate by 25 basis points to 2.00% ~ 2.25%, the first drop in 10 years since December 2008. In addition, the Federal Reserve will end its' table contraction 'in August, two months earlier than expected. However, the FOMC statement and the statement of Fed chairman Powell were not as "doves" as expected, and they were ambivalent about the prospect of interest rate cuts. Powell said that "the interest rate cut does not mean the beginning of the interest rate cut cycle, but I am not saying that there is only one interest rate cut".
Just after the Federal Reserve announced the interest rate cut, US stocks fell together. The three major stock indexes fell by more than 1%. The Dow once fell more than 200 points and fell below the 27000 mark. Spot gold fell more than $11 and once hit a monthly low of $1411. The dollar index rose 0.7%, a two-year high to 98.8. The panic index VIX also rose more than 15%, breaking a one month high to 16.12.
Following the pace of the Federal Reserve, Brazil cut the benchmark interest rate by 50 basis points to 6.00%, suggesting that the benign inflation prospect means that it can further implement easing policy, and then joined the wave of global monetary easing policy. Earlier, the central banks of the United Arab Emirates, Saudi Arabia and Bahrain cut interest rates by 25 basis points. (First Finance)
CITIC Securities Ao: the Federal Reserve cut interest rates by 25 basis points and is still optimistic about the future performance of gold prices
According to the research report released by AO Zhen of CITIC Securities, the Federal Reserve announced a 25 basis point interest rate cut and ended the table reduction plan ahead of schedule on August 1, bringing global liquidity into a loose inflection point. Under the downward pressure of the global economy, there are many risk factors such as friction and disorderly brexit. Under the short-term risk aversion, the gold industry is expected to increase its allocation. Maintain the gold industry's "stronger than the big market" rating. Recommend Shandong gold and Zhaojin gold industry (H), and continue to pay attention to humon and Zijin mining.