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Fed cuts rates by 25 basis points to stabilize economy; inflation steady, market reacts positively.

TraderKnows
TraderKnows
11-08

The Federal Reserve announced a 25 basis point rate cut in response to slowing economic growth, and the market reacted positively, which may pave the way for another rate cut in December.

In today's policy announcement, the Federal Reserve cut the benchmark interest rate by 25 basis points, adjusting it to the range of 4.50%-4.75% to support slowing economic growth and gradually achieve the inflation target of 2%. This rate cut met market expectations and is an important measure to address the slowdown in the job market, while also showing the Fed's cautious optimism about the economic outlook.

In a unanimous vote after a two-day policy meeting, the Federal Open Market Committee decided on this rate cut strategy, reaffirming that U.S. economic activity remains on a solid pace despite signs of slowing growth in some sectors. Following the policy statement, the S&P 500 Index maintained a 0.66% gain, indicating market confidence in the Fed's rate cut. The bond market was also affected, with the 10-year Treasury yield rising to 4.353% and the 2-year Treasury yield increasing to 4.2347%. Meanwhile, the dollar index narrowed its decline to -0.54%, and the euro rose by 0.48%, reflecting the market's swift response to the U.S. rate cut policy.

Market experts indicated that although the federal funds rate remains at a relatively restrictive level, the degree of tightening has eased after the rate cut. Analyst Detrick noted that the pace of future Fed rate cuts may be slower, but if inflation continues to improve towards the target, there remains a high possibility of another rate cut in December. Despite the improved economic environment, the Fed also expressed concern about potential risks in the labor market.

This decision conveys the Fed's more flexible attitude in adjusting rates while also indicating a focus on maintaining robust policy amidst uncertainties in the global economic environment, striving to balance economic growth and inflation.

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Interest rate cut

A rate cut refers to the central bank adjusting the interest rate level so that it is lower than before, as a form of monetary policy. It is a means by which the central bank affects the supply and demand relationship in the money market, money creation, and the level of interest rates by changing the level of interest rates. Rate cuts are usually used to counter inflation, stimulate economic growth, or alleviate economic downturn pressures.

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