US Fed Interest-Rate Cuts Last Week: What You Need to Know
US Fed Interest-Rate Cuts Last Week: What You Need to Know
This is the TradingFlow Team, and today we’ll cover the Fed’s 50 basis point rate cut last week and its market impact.
(Source: Unsplash)
The Federal Reserve Announces a Significant 50 Basis Point Rate Cut
Last Wednesday (September 18), the Federal Reserve announced its rate adjustment decision at 2:00 PM Eastern Time.
Shortly after, Chairman Jerome Powell held a press conference at 2:30 PM to explain the reasons behind the rate decision, assess economic conditions, and provide guidance for future policy directions.
This rate cut, the first since the onset of the COVID-19 pandemic, lowers the benchmark rate by 0.5 percentage points in an effort to prevent further slowdown in the labor market.
Federal Reserve Chairman Powell expressed recent concerns about the labor market. Although layoffs have not significantly increased, hiring activities have slowed down considerably. In fact, the last time the monthly hiring rate fell to the current 3.5% (of the total workforce), the unemployment rate exceeded 6%.
As employment and inflation pressures eased, the Federal Open Market Committee (FOMC) decided to lower the key overnight lending rate by 50 basis points, in line with the market's shift towards expecting a larger rate cut.
Apart from the emergency rate cuts during the pandemic, the last time the FOMC made such a large 0.5 percentage point cut was during the global financial crisis of 2008.
This decision lowers the federal funds rate to the 4.75%-5% range.
Additionally, the committee indicated through the "dot plot" that another 50 basis point cut could be expected by the end of the year, aligning with market expectations. Officials also projected a further 1 percentage point rate cut by the end of 2025, and another 0.5 percentage point cut by 2026. Overall, the dot plot suggests that the benchmark rate will drop by approximately 2 percentage points following this rate cut. How did this significant rate cut impact U.S. stocks?
Stock Market Performance After the 50 Basis Point Rate Cut
Following the U.S. rate cut of 50 basis points, global capital markets were shaken, with U.S. institutions engaging in both long and short trades. On Wednesday afternoon, September 18, the Dow Jones dropped 0.25%, the S&P 500 fell 0.29%, and the Nasdaq declined 0.31%. Nvidia decreased by 1.92%, with Apple being the only stock to rise, gaining 1.80%.
However, on Thursday, September 19, U.S. stock futures surged across the board. The Dow Jones rose by 1.27%, the Nasdaq by 2.49%, and the S&P 500 index increased by 1.66%, surpassing 5700 points and setting a new all-time high. According to SPY options data from the Option Chain Explorer in Trading Flow's Option Chain Analysis, the open interest for SPY call options at a strike price of 550 surged on September 18, with positions being set as early as September 6. The open interest for call options with a strike price of 561 continuously increased between September 6 and September 17, reflecting investor expectations of the rate cut.
Chip stocks broadly rose, with ASML up over 5%, TSMC, Arm Holdings up over 4%, Nvidia up over 3%, and Intel up more than 2%.
Bitcoin surged over 6% intraday, breaking through $63,000, with blockchain-related stocks strengthening. MicroStrategy gained over 6%, while Riot Platforms and Coinbase rose more than 5%. Popular Chinese stocks also saw gains, with XPeng up more than 6%, JD.com rising nearly 6%, and Alibaba and Pinduoduo both up nearly 4%.
If you like this article, please subscribe. To use all the tools, start a free trial for 14 days now.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. Before making any financial investment decisions, please ensure you thoroughly understand all aspects of the information and conduct your own research.
🎁 Bonus time 🎁 with Moomoo, one of the most cost-effective investment platforms currently on the market!
Click the link below to try moomoo and receive your welcome free stock and cash sweep bonus! 👉: https://j.moomoo.com/00IRhe