The economic impact remains to be seen. The two parties in the United States have different reactions. The Fed's "substantial" interest rate cut has led to different interpretations.

The Federal Reserve announced on the 18th that it would lower the target range of the federal funds rate by 50 basis points to a level between 4.75% and 5.00%. This is the first rate cut by the Federal Reserve since March 2020. The U.S. CNBC website said on the 18th that the agency has started a new round of loose monetary policy in the United States with a rather "aggressive" attitude. The 50 basis point rate cut was called a "powerful action" by Federal Reserve Chairman Powell, but the Wall Street Journal quoted economists as saying that this also reflects concerns caused by the weak labor market. With less than 7 weeks to the U.S. election voting day on November 5, the Fed's interest rate cut has quickly become a "political topic" for debate between the two parties in the United States. The Wall Street Journal said that the Democratic and Republican camps expressed their different views, with the former appreciating the Fed's approach and the latter downplaying the positive impact that American voters may have. Some analysts believe that whether the Fed's rate cut can resolve the potential risks facing the U.S. economy remains to be further observed. Germany's Focus Weekly published an article listing "7 warning signs of the U.S. economy" and worried that the Fed's rate cut would come too late.

Quite a "hawkish" approach

The Federal Open Market Committee, the decision-making body of the Federal Reserve, issued a statement on the 18th saying that the committee has "greater confidence" that the inflation rate can move sustainably toward the 2% target, and believes that the risks of achieving the two major goals of full employment and price stability are roughly balanced. Powell said at a press conference on the 18th that the Federal Open Market Committee does not think that the interest rate cut is slow, but rather that it is a timely move. Previously, some former Federal Reserve officials and economists called on the Federal Reserve to take interest rate cuts at the July meeting.

Powell said that the personal consumption expenditure price index has fallen from a high of around 7% to 2.2% in August, indicating that inflation has "significantly eased." As inflation fell, the U.S. job market showed signs of weakness. Powell said that the average monthly job growth in the past three months was 116,000, a significantly lower growth rate than earlier this year. At the same time, the unemployment rate rose to 4.2%.

Bloomberg News of the United States said on the 19th that since March 2022, the Federal Reserve has raised interest rates 11 times in a row, raising the target range of the federal funds rate to a 20-year high in July 2023. Since then, inflation has cooled and the labor market has softened, but layoffs remain low. However, there are more and more signs of pressure. The excess savings that have supported Americans' lives in recent years have dried up, and rising unemployment could trigger a drop in spending. The chaotic economic situation has increased uncertainty.

Against this backdrop, the Wall Street Journal said on the 19th that the Fed chose to cut interest rates for the first time in four years with a "bolder start," hoping to prevent the labor market from evolving from the current gradual cooling to a more severe freeze. Singapore's Lianhe Zaobao said on the 19th that the Fed's rate cut was expected, but the magnitude of the cut was unexpected, and Citigroup trader Singh described the move as quite "hawkish."

Some analysts believe that unless there is a major economic crisis, the Fed rarely cuts interest rates by 50 basis points when it enters a new rate cut cycle in history. According to CNBC, in addition to the emergency rate cut during the COVID-19 pandemic, the last time the rate was cut by 50 basis points was during the 2008 global financial crisis.

The Washington Post quoted analysts as saying that the 18th was the beginning of a series of rate cuts. According to the Fed's forecast, the US federal funds rate will be 4.4% at the end of this year, or the target range of 4.25% to 4.5%, and will drop to 3.4% by 2025 and 2.9% by 2026.

What specific impact will the Fed's rate cut bring? The Associated Press said on the 19th that over time, the Fed's rate cut will reduce the borrowing costs of mortgages, car loans and credit cards, thereby boosting Americans' financial situation and supporting more spending. Homeowners will be able to borrow at lower interest rates, and companies will be able to increase borrowing and investment. However, rate cuts may also provide more fuel for inflation.

It triggered "political debate"

The Washington Post said that US Vice President and Democratic presidential candidate Harris used more cautious words on the 18th to evaluate the Fed's rate cut. She said that the Fed's rate cut is "good news" for Americans. She also mentioned that prices are still too high for many middle-class and working families, and she will work to reduce the cost of daily life. US President Biden said that the Fed's decision marked an "important moment" for the US economy.

Former US President and Republican presidential candidate Trump said, "If they are not just playing politics, then the economic situation is very bad, so they have to cut so much." The Wall Street Journal reported on the 19th that Trump's running mate Vance downplayed the impact of the rate cut on voters, believing that it was insignificant compared to the difficulties faced by American families. Trump's economic adviser Moore said that the Fed's decision was "jaw-dropping", "I'm not saying that a 50 basis point rate cut is unreasonable... I just wonder, why now?" He told CNN that the Fed's move will jeopardize its image of "political independence."

Forbes magazine said that some experts believe that the timing of this rate cut may enhance Harris' image as a member of the current government. Moody's economist Zandi said that this "is definitely an economic tailwind behind Harris' campaign" and that the rate cut "is not only symbolic, but also about practical effects." The BBC said on the 19th that interest rate changes and their impact will be reflected in media reports on the US economy in the last month or so before this year's election.

Reuters sorted out on the 19th that although the US interest rate policy rarely remains unchanged in an election year, there have only been two previous cases of launching a new interest rate cut cycle less than 10 weeks before the voting day. Powell and other policymakers have always said that the Federal Reserve is an independent federal agency and that their decisions are based on data, prospects and risk balance, not other things. CNBC website said that although the Federal Reserve has tried to distinguish its much-anticipated interest rate cut decision from the political background, a political debate broke out shortly after the relevant news was announced on the 18th. The report said that Harris and Trump are both trying to portray themselves as the best presidential candidates who can promote the healthy development of the US economy. Because American voters have repeatedly listed the high cost of living as their top concern in national polls.

German media: 7 warning signs of the US economy

CNN commented on the 18th that the Federal Reserve’s first interest rate cut in more than three years of the Biden administration has raised new questions about the health of the US economy and may also affect voters’ final voting decisions. The Fed’s decision to cut interest rates by 50 basis points at once seems to indicate that the goal of a "soft landing" for the economy has been achieved. The Biden administration may use this as a propaganda point. However, from another perspective, this rate cut can also be seen as a stimulus to the US economy. Most mainstream scholars believe that the US economy has not yet fallen into recession, but it has not completely escaped the risk of recession.

Some foreign media expressed concerns about the situation of the US economy. "Seven warning signs of the US economy also endanger Germany's (recovery) hopes." Germany's Focus magazine published an article on the 19th, saying that although the Federal Reserve cut interest rates, the decision came too late. Some indicators have shown that the US economy has changed and the possibility of it falling into recession is increasing. This is also bad news for Germany, which hopes to achieve a moderate recovery in 2025.

The seven warning signs listed in the article include: Americans' savings rate is at a historical low, which means that the "ammunition depot" for increasing consumer spending has now been emptied; the performance of the consumer industry has begun to shrink, and the sales of US branches such as McDonald's and Starbucks have declined; geopolitical tensions have led to stagnation in globalization; the labor market has issued warning signals; corporate profits are weak, especially technology companies; US national debt has increased, and personal credit card debt has increased; well-known investor Buffett continues to sell.

According to the Financial Times, some analysts said that the Fed's decision indicated potential concerns about the economy. Manley, a global market strategist at JPMorgan Chase Asset Management, said, "The current situation is very vague, and the macro data is not as clear as we thought." He commented that the Fed is paying attention to the economic situation and said, "We have made more progress in controlling inflation than we thought, but we think the labor market is starting to decline and things may get worse." In Manley's view, "This is not a good sign."

What is the impact on Asian economies?

CNBC website commented that since the Fed is at the center of the global financial system, its decision to cut interest rates this time may cause reactions in other central banks. The Wall Street Journal said that central banks in the United Kingdom, Canada and other countries have recently begun to cut interest rates, but central banks in India, South Korea, South Africa and other places are still standing by, and the Fed's latest move may encourage them to take steps to cut interest rates.

Hong Kong's South China Morning Post said on the 19th that as the Fed officially launched a rate cut cycle, Asian economies including China may have more room to implement loose policies and promote growth. A consulting firm believes that the environment for commodities is becoming more favorable. According to the Russian newspaper on the 19th, the loosening of monetary policy in the United States will usually cause the dollar to depreciate against other currencies, which will push up the prices of oil and other raw materials: this is also the only channel for the Fed's interest rate cut to affect the Russian economy.

Xu Weihong, vice president of Yongxing Securities, told the Global Times on the 19th that based on past experience, the Fed's new measures are beneficial to alleviating the debt pressure of emerging market countries and preventing the risk of capital outflow. However, after the 2008 financial crisis, emerging market countries represented by China have significantly strengthened the risk management of cross-border capital flows, so the tidal impact of the US dollar has been largely smoothed. Xu Weihong believes that this is also inseparable from the deepening of cross-border financial cooperation between China and the central banks of many countries under the "Belt and Road" initiative. He also said that the impact of the US dollar entering the interest rate cut channel includes the narrowing of the interest rate gap between China and the United States, which will improve the depreciation pressure of the RMB (7.0640, -0.0140, -0.20%). Yang Delong, chief economist of Qianhai Kaiyuan Fund, said that this may also bring a new round of opportunities for A-shares and Hong Kong stocks.

Xu Weihong believes that, in theory, the appreciation of the RMB will affect China's exports, but the impact is not significant under the current circumstances. The main reason is that overseas market demand is recovering, and American companies are worried that the government will implement a new round of trade protectionism measures, so there is a clear demand for replenishing inventory.