What does the Fed's rate cut mean? U.S. economic easing cycle is coming

The Federal Reserve announced a 50 basis point interest rate cut, triggering a rise in U.S. stocks, with the Nasdaq up more than 1%, the S&P 500 up 0.72% and the Dow up 0.74%, as the market gradually enters an easing cycle.

The Fed's rate cut means a reduction in the federal funds rate, the interest rate on short-term borrowing and lending between banks. This move usually indicates the Fed's desire to stimulate economic activity by lowering the cost of borrowing and promoting increased borrowing, investment and consumption by businesses and individuals. Its specific impacts include:

1. Lower borrowing costs: Interest rates on business and personal loans (e.g., mortgages, car loans, etc.) typically fall, encouraging more borrowing and investment.

2. Economic stimulus: Lower interest rates are designed to encourage consumption and investment, helping the economy to rebound when growth slows or is at risk of recession.

3. Increased inflationary pressures: Interest rate cuts increase the supply of money in the market, which may push up prices and lead to higher inflation.

4. Currency depreciation: the dollar may depreciate as lower interest rates cause investors to move to other higher yielding markets, reducing the demand for dollar-denominated assets.

5. favorable stock market: interest rate cuts reduce the cost of corporate finance, improve earnings expectations, and enhance the attractiveness of the stock market.

Overall, the Federal Reserve interest rate cuts reflect its concern about the economic outlook, with the intention of promoting economic recovery through loose monetary policy.

Translated with www.DeepL.com/Translator (free version)