Disagreements over the Fed's interest rate cuts have surfaced! The world is closely watching September, is your wallet ready?

On July 10th at midnight Beijing time, the Fed released the minutes of the Federal Open Market Committee (FOMC) meeting held on June 17-18 regarding interest rate decisions.
The minutes show that the attending Fed officials have differing views on the future direction of monetary policy. Although most officials believe that "this year is suitable for interest rate cuts," there is intense debate over the timing and magnitude.
Why do the actions of the Fed attract such great attention? What is the logic behind the interest rate cut? Why is it said that the result of this interest rate cut will impact everyone's wallet?
Today we will unravel the layers together and help you understand the underlying logic and potential impact of this policy shift.
Why is the world closely watching the Fed's interest rate cuts?
The Fed's monetary policy is not only the "steering wheel" of the U.S. economy but also the "main valve" of global liquidity. Its influence is reflected on three levels:
1. The "barometer" of the capital market: A rate cut by the Fed often means a decrease in the cost of funds in the market, making it easier for companies to finance, and risk assets such as the stock market and bond market may enter a rising cycle.
For example, after the 2008 financial crisis, the Fed continuously lowered interest rates and initiated quantitative easing, directly driving the US stock market to start a ten-year bull market.
2. The "trigger" for exchange rate fluctuations: Interest rate cuts may lead to a depreciation of the dollar, resulting in a relative appreciation of emerging market currencies, which in turn affects the profits of multinational corporations and the global trade landscape.
After the Fed cut interest rates in 2020, currencies such as the renminbi and euro strengthened for a time, attracting a large influx of international capital into the Asian market.
3. The "barometer" of economic expectations: The Fed's decisions reflect its judgment on the economic outlook of the United States and even the global economy. If interest rate cuts are implemented, it may indicate a slowdown in the U.S. economic growth, and other global economies may also be forced to adjust their policies in response.
Why is the Fed considering a rate cut? Economic weakness or political pressure?
On the surface, the Fed's interest rate cut is to address the economic slowdown, but the underlying reasons are far more complicated than they appear:
1. Divergence in economic data: Although the unemployment rate in the U.S. remains low, signs such as weak manufacturing and weakening consumer momentum have raised concerns.
Goldman Sachs pointed out that the U.S. labor market "seems healthy, but the difficulty of finding a job is increasing," and seasonal factors and changes in immigration policy may further suppress employment growth.
2. The "expectation game" of inflation: Fed Chairman Powell has repeatedly emphasized that "the decline in inflation is a prerequisite for interest rate cuts," but the minutes from the June meeting indicate that officials expect inflation to rebound to 3% in the coming months.
This contradictory attitude reflects the dilemma of the policy - on one hand, it wants to avoid runaway inflation, while on the other hand, it fears a hard landing for the economy.
3. The Underlying Political Pressure: The Trump administration has recently been pressuring the Fed frequently, calling on Wednesday for the Fed to lower the federal benchmark interest rate by at least 3 percentage points to help reduce the cost of repaying the national debt.
However, in the face of pressure, Fed Chairman Powell has repeatedly stated on various occasions that he will not yield to political pressure when formulating monetary policy.
He insists that, in the context of a strong economy and uncertainty about inflation, the Fed is in a favorable position to remain patient before obtaining more information.
What chain reactions will occur when interest rate cuts are implemented?
Citigroup believes that although last week's strong employment data from Country M has blocked the possibility of a rate cut in July, the consensus among Fed officials on cooling inflation is driving the initiation of the rate cut process in September.
If the Fed really starts cutting interest rates in September, the global market may show the following trends:
1. Stock Market: Short-term euphoria and long-term concerns coexist. Goldman Sachs predicts that interest rate cuts will drive the S&P 500 index to rise by over 10% in the next 12 months, with technology stocks and consumer sectors likely to be the biggest winners. However, caution is advised regarding the risk of "good news being fully priced in."
Deutsche Bank pointed out that if the rate cut is less than expected or economic data worsens, the market may experience reverse fluctuations.
2. US Dollar: Under depreciation pressure, the "seesaw effect" may cause the US Dollar Index to fall below the 100 mark, while currencies such as the Renminbi and Yen may strengthen in stages, benefiting export-oriented economies like China.
Emerging market assets (such as gold and Hong Kong stocks) will attract more capital inflows, but countries with high debt levels may face exchange rate shocks.
3. Enterprises: Financing Deregulation and Cost Pressures Coexist. The cost of issuing corporate bonds in the U.S. has decreased, and tech giants are expected to increase their buyback efforts, but exporting companies may suffer profit losses due to the depreciation of the dollar.
The Fed's interest rate decisions have never been a simple "economic issue," but rather a complex game of economics, politics, and international relations.
For us, rather than speculating on policy paths, it is better to focus on two major anchors: the real trend of inflation data and the coordinated actions of global central banks. #美联储降息#