The Federal Reserve announced on the local time of the 18th that it will lower the target range of the federal funds rate by 50 basis points, reducing it to a level between 4.75% and 5.00%.

This is also the first interest rate cut by the Federal Reserve in four years.

In addition, according to the Federal Reserve's forecast, the U.S. federal funds rate will reach 4.4% by the end of this year, that is, a target range of 4.25% to 4.5%, and it is expected to drop to 3.4% by 2025, and is expected to drop to 2.9% by 2026.

Analysis suggests that historically, unless facing a major economic crisis, the Federal Reserve rarely cuts interest rates by 50 basis points when starting a new rate-cutting cycle.

The Federal Reserve's rate cut this time, with a higher strength than expected by institutions, may be to achieve an economic "soft landing" and hedge against the risk of "stalling" economic activity.

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The Federal Reserve's decision-making body, the Federal Open Market Committee (FOMC), said in a statement after the meeting on the 18th that the committee had "greater confidence" in the sustainable progress of the inflation rate towards the 2% target, and believes that the risks of achieving the two major goals of full employment and price stability are roughly in a balanced state.

At the press conference held after the meeting, Federal Reserve Chairman Powell said that the 50 basis point rate cut was a "strong action", and also stated that the Federal Open Market Committee does not think that the rate cut action was slow, but believes that it is a timely measure.

What impact will the Federal Reserve's rate cut have?

Recent indicators show that the U.S. economy continues to expand at a robust pace.

Employment growth has slowed down, and the unemployment rate has risen but is still at a low level.

According to data released by the U.S. Department of Labor last week, the U.S. Consumer Price Index (CPI) rose by 2.5% year-on-year in August, narrowing by 0.4 percentage points from July, and the smallest increase since March 2021.

At the same time, the labor market continues to be weak, and the number of layoffs in the United States in July increased to 1.76 million, the highest level since March 2023.

What impact will the rate cut bring?

According to the Daily Economic News, after the announcement of the Federal Reserve's rate cut decision, U.S. stocks rose, U.S. bond prices rebounded, gold rose, and the U.S. dollar index plunged; but then there was a big reversal.

Specifically, the gains of the three major U.S. stock indexes quickly expanded, and the Dow Jones and S&P 500 indexes both set historical highs during the trading day, but then the three major indexes quickly gave up some of the gains, and all three indexes turned to fall.

As of the close, the Dow Jones fell by 0.25%, the Nasdaq fell by 0.31%, and the S&P 500 index fell by 0.29%.

Most of the large technology stocks fell, with Intel falling by more than 3%, Netflix falling by more than 2%, Nvidia falling by more than 1%, Tesla and Amazon fell slightly; Apple rose by more than 1%, Google and Meta rose slightly.

Within three minutes after the Federal Reserve's announcement, the two-year U.S. bond yield, which is sensitive to interest rates, plunged by more than 10 basis points, falling from above 3.64% to below 3.54%; the ten-year U.S. bond yield fell from above 3.69% to below 3.64%.

However, it quickly turned from a decline to a rise, and as of the time of writing, the two-year U.S. bond yield rose by 0.69%, and the ten-year U.S. bond yield rose by 0.47%.

In terms of commodities, after the interest rate decision was announced, the spot gold price rose rapidly, once breaking through 2600 US dollars/ounce, setting a new record high, and then also fell sharply, turning from a rise to a decline.

As of 8:00 on September 19, Beijing time, the latest spot gold price was reported at 2558.46 US dollars/ounce.

Domestic refined oil may fall at the same time, as an important driving force for global economic growth, the Federal Reserve's rate cut also affects the crude oil market.

The impact of the Federal Reserve's 50 basis point rate cut on crude oil prices is more complex.

Generally speaking, a rate cut will lead to a lower U.S. dollar exchange rate.

Since crude oil is priced in U.S. dollars, it becomes relatively cheaper for investors holding other currencies, which will stimulate demand and drive up oil prices.

Richard Carter, head of fixed income research at Quilter Cheviot, also said that oil and other commodities that are usually priced in U.S. dollars are often boosted by rate cuts because lower borrowing costs can stimulate the economy and increase demand.

However, after this round of the Federal Reserve's announcement of a rate cut, the market still has a pessimistic attitude towards the prospects for global economic growth, and international oil prices have fallen.

As of September 18th, local time, the U.S. oil contract for November fell by 1.16%, reporting 69.15 US dollars/barrel; the Brent oil contract for November fell by 1.1%, reporting 72.21 US dollars/barrel.

In the recent period, the international oil price has fluctuated greatly.

In early September, under the influence of multiple bearish factors, the international oil price continued to fall, and the U.S. oil main contract and the Brent oil main contract both fell by more than 7% in a week, which also wiped out all the gains of the international oil price since the beginning of the year.

In the past week, the international oil price has generally rebounded slightly.

From the low point on September 10th to now, the U.S. oil has risen to a high level of more than two weeks.

However, investors' concerns about the prospects for oil energy demand still put pressure on oil prices.

Market institutions predict that from September 2024 to March 2025, global oil consumption will decrease by 1.46 million barrels/day, due to the decline in U.S. gasoline consumption, the weakening of power consumption in the Middle East, and the decline in seasonal demand for jet fuel.

In addition, OPEC also slightly lowered its expectations for oil demand growth in its monthly report released on September 10th.

Analysis suggests that the poor global economy and oil demand are still the main reasons for the weak oil market.

Recently, Morgan Stanley lowered its oil price expectations, believing that the global oil market is in a period of weak demand.

Goldman Sachs believes that the excess supply of crude oil in the future will be an important factor driving the continuous weakness of oil prices.

HSBC also said that it is difficult for the crude oil market to be bullish, and the downside risk of oil prices is increasing.

Citigroup also predicted that due to market oversupply, Brent crude oil may fall to about 60 US dollars/barrel by 2025.

Wang Yilu, an analyst at Donghai Futures, believes that the probability of a decline in overseas demand in the later period is relatively large, and the crude oil price in September may start to fall after the dust settles in the interest rate cut trading.

In terms of domestic oil prices, according to the "10 working days" pricing rule, refined oil prices will be adjusted at 24:00 on September 20th.

According to a report by China Economic Net, relevant institutions predict that this round of refined oil price adjustment may usher in a sharp decline, with an expected decline of about 0.32 yuan per liter, and filling a box of oil will save 16 yuan.