The Federal Reserve made a sudden and significant move by cutting interest rates by 50 basis points, lowering the rates to 4.75%-5.00%.

This has caused quite a stir in the market, completely defying conventional wisdom!

Look, the three major U.S. stock indices initially soared in a burst of joy, with everyone expecting a meteoric rise, but then they turned around and fell abruptly, catching people off guard.

The NASDAQ, S&P 500, and Dow Jones all closed lower, which is quite a bittersweet situation.

This wasn't the end, as the gold price also fluctuated wildly, initially rising by 1%, which brightened many people's eyes, but then it turned around and fell by 0.41%, closing at $2581 per ounce.

As for crude oil, it plummeted below $70 a barrel, which was quite a shock.

Advertisement

The European stock market couldn't escape this wave of volatility either, opening high and closing low, with declines ranging from 0.10% to 0.60%, creating a gloomy atmosphere.

Our domestic Chinese concept stocks were also affected, with most falling.

NIO's situation was particularly dire, falling by 7.21%, which is really heartbreaking.

However, there is some hope for the A-share market, as many believe that funds will flow into the A-share market, so there might be a rise today.

After all, when the global market is cutting interest rates, capital always needs to find a safe place to go.

So, why did the Federal Reserve suddenly cut interest rates?

This matter must start from the global economic situation.

You see, recently, the U.S. economic situation is quite complex.

On one hand, although the inflation rate has fallen somewhat, it remains high, and many ordinary Americans are almost suffocated by the prices.

On the other hand, the pace of economic growth is slowing down, corporate investment is decreasing, and many industries are in a slump.

The Federal Reserve has been raising interest rates to suppress inflation, but this has stifled economic growth.

Recently, with the release of some data, especially a slight rise in the unemployment rate and a not-so-optimistic consumer confidence index, the market's pessimistic sentiment is getting heavier, and the Federal Reserve finally couldn't hold on and had to adjust its policy.

Cutting interest rates by 50 basis points is like giving the market a "reassurance pill," making people feel that the cost of capital can be reduced, borrowing can become cheaper, and thus drive economic recovery.

This interest rate cut is ostensibly for "stabilizing the economy," but there are many calculations behind it.

Speaking of which, a few key figures must be mentioned.

Federal Reserve Chairman Powell is undoubtedly the focus of attention, and his decision this time has been through many difficulties and dangers.

He has been stubbornly adhering to high interest rate policies, and many people have accused him of being a "cold-blooded economist."

Some American politicians have even publicly criticized his approach, believing that this could push the U.S. economy into a recession.

This interest rate cut is also a bit like Powell's compromise with the market and politicians.

The Federal Reserve's interest rate cut undoubtedly has a huge impact on the global financial market.

The first is the fluctuation of the U.S. dollar, and the U.S. dollar index also went through a roller coaster after the interest rate cut news was released, rising first and then falling, which directly affected the exchange rates of other countries' currencies.

Especially for emerging market countries, their currencies may face further depreciation pressure, and the risk of capital outflow increases.

Coupled with the potential decrease in the global market's demand for U.S. dollar assets, this will further affect the foreign exchange reserves and financial stability of various countries.

In Europe, which was already in a mess due to the energy crisis and economic downturn, the European Central Bank is likely to be forced to make adjustments now that the Federal Reserve has cut interest rates.

After all, Europe's inflation problem is even more serious than that of the United States.

Once the Federal Reserve starts cutting interest rates, if Europe can't keep up, a large amount of capital may flow out of the European market.

As for China, the Federal Reserve's interest rate cut is actually a double-edged sword for us.

On one hand, the turmoil in the global market may bring some risks, such as increased uncertainty in capital liquidity, especially some Chinese concept stocks that have been impacted.

On the other hand, the Federal Reserve's interest rate cut will make U.S. dollar assets less attractive, and global capital may start looking for safer and higher-return investment markets, and China, as the world's second-largest economy, can attract some capital inflows.

Moreover, this interest rate cut may bring certain opportunities to China's foreign trade enterprises.

After the depreciation of the U.S. dollar, the cost of exporting to the United States may decrease, thereby enhancing the competitiveness of Chinese manufacturing.

In addition, with the Federal Reserve's interest rate cut, the global economy may gradually stabilize, which is good news for China's exports and economic growth.

In the face of this operation by the Federal Reserve, China must have its own response strategy.

First, we must ensure the stability of the domestic financial market to prevent significant fluctuations due to the volatility of the external market.

After all, the turbulence in the U.S. stock market and the European stock market has already triggered a certain panic sentiment globally, and we must take preventive measures in advance to avoid being dragged down by the A-share market.

Second, China needs to increase the pull of domestic demand and reduce dependence on the external market.

After all, the recovery of the global economy still needs time, and the slowdown in U.S. economic growth will also affect global demand.

If we can continue to promote the upgrade of domestic consumption, especially in the fields of technological innovation and new energy, and make more breakthroughs, we can effectively resist the uncertainty of the external market.

In addition, we can seize the opportunity of capital inflow brought by the Federal Reserve's interest rate cut and actively attract foreign capital into the Chinese market.

Now that global investors are looking for relatively safe investment targets, China's economic growth prospects are relatively stable, especially the policy environment and market size are very attractive to foreign capital.

If we can further attract foreign capital into the Chinese market through means such as simplifying the process of foreign capital access and providing more investment preferential policies, it will help to enhance our economic resilience.

Finally, China can continue to promote the internationalization process of the renminbi.

The Federal Reserve's interest rate cut may lead to some challenges to the global dominance of the U.S. dollar, which gives the renminbi more opportunities.

If we can further expand the proportion of the renminbi in international trade and financial settlement, gradually enhance the international influence of the renminbi, and better cope with the uncertainty brought by the fluctuation of the U.S. dollar exchange rate in the future.