In September, the Federal Reserve took an unusual step by cutting interest rates by 50 basis points in one fell swoop. This move sparked a significant debate within the American industry.

Divisions within the Federal Reserve

There was a lack of consensus within the Federal Reserve regarding the 50 basis point rate cut in September. Some argued for a more cautious approach, suggesting gradual reductions of 25 basis points at a time, allowing the Federal Reserve to observe economic conditions for a longer period and avoid potential chaos from a too-aggressive single cut.

Others felt that a 50 basis point reduction was appropriate, aligning with the current state of inflation and employment. They believed this approach would effectively control inflation while maintaining the vitality of the U.S. economy. The disagreement stemmed from differing views on the economic situation, leading to varied proposed responses.

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Market Reaction to the Rate Cut

Opinions were divided on the Federal Reserve's half-percentage-point rate cut in September. Some believed that the economic data was quite positive, suggesting that the U.S. economy was on solid ground and could transition smoothly, thus reducing expectations for further rate cuts by the Federal Reserve this year. For instance, the Federal Reserve predictor at the Chicago Mercantile Exchange indicated that the market now widely considers it unlikely for another half-percentage-point cut at the November meeting.

The release of the U.S. employment report, with favorable data, led many Federal Reserve officials to consider pausing interest rate hikes. Boston's leader, Collins, stated that inflation was still declining, and further rate cuts might be necessary, but this would depend on subsequent developments. It is possible that we may see two more cuts this year, each by 0.25 percentage points. The market has made it clear that, despite the Federal Reserve's rate cuts, there is still some confusion about future policies.

Potential Impact on the A-Share Market

If the Federal Reserve cuts interest rates, the A-share market might also fluctuate. Some believe that with the devaluation of the U.S. dollar, capital might flow in search of opportunities, potentially benefiting the A-share market. However, with the Federal Reserve's rate-cutting momentum weakening and the A-share market experiencing significant declines, some have begun to speculate that a financial war has begun, and the Federal Reserve seems to have abandoned this approach, leading to the current situation.

On October 3rd, Peter Schiff, a Wall Street heavyweight, criticized the Federal Reserve's policy direction, believing it to be misguided. He predicted that rate cuts alone would not be sufficient and that we might have to face quantitative easing and a rebound in inflation, which would undoubtedly double our debt and losses. He even suggested that foreign capital might begin to withdraw from the U.S. market on a massive scale, reaching hundreds of billions of dollars. This has raised concerns about the performance of the A-share market.The Federal Reserve's Policy Outlook

When we discuss the direction of monetary policy, the Federal Reserve officials have clarified that the 50 basis point rate cut in September does not indicate a belief in significant economic damage. Their thinking is that if inflation gradually returns to the 2% target, coupled with stable employment growth, they may need to slow down in the future, potentially leading to a less hasty policy approach.

Governor Jefferson stated that we must closely monitor the latest economic information and risks to determine whether to continue lowering interest rates. Goldman Sachs analysis suggests that the likelihood of a 50 basis point rate cut by the Federal Reserve is slim, estimating that a 25 basis point reduction might be more likely in November. The market is now watching to see what the Federal Reserve's next move will be.

Support from Economic Data

Despite differing opinions within the Federal Reserve, the economic data from the United States remains relatively strong, providing momentum for rate cuts. In September, Federal Reserve officials estimated that the U.S. economy could maintain stability. Their analysis was quite accurate, with the economic situation appearing to be fundamentally solid, reducing the market's urgency for rate cuts.

Recently released data from the United States shows that the non-farm market performed quite strongly in September, leading to a decrease in expectations for a Federal Reserve rate cut by the end of the year. At the same time, the Chinese yuan continues to depreciate against the U.S. dollar, having already surpassed the significant threshold of 7. These economic figures have been very helpful, ensuring the stability of policy even with differing voices within the Federal Reserve.

Changes in Market Expectations

The shift in expectations about the Federal Reserve's rate cut indicates varying views on the trajectory of the U.S. economy. Many now believe that the Federal Reserve may not cut rates by as much as previously thought, which is somewhat reassuring. However, the uncertainty about the Federal Reserve's next move still looms large, causing tension whenever there is the slightest policy movement, for fear of any missteps.

The dashed hopes for a Federal Reserve rate cut have also caused a stumble in the A-share market. Many believe this is related to the U.S. central bank's hesitancy in the financial markets. Attention is now focused on what the Federal Reserve will do next, as the A-share market's prospects remain unclear.