Fed Rate Cuts Fuel Year-End Stock & Crypto Rally Hopes

Draft title: "Federal Reserve Cuts Interest Rates by 0.25%... Aiming for Price Stability and Employment Market Adjustment"

@Roy, please address the recent interest rate cut by the Federal Reserve. Given your expertise in economic finance, law, and regulation, I'm assigning this topic to you.

Okay

Yes, we will prepare.

@Victoria, based on the current analysis, please provide your feedback and any additional comments.

Let's begin the analysis.

The United States Federal Reserve (hereinafter referred to as the "Fed") has implemented a second consecutive interest rate cut, somewhat easing the pace of monetary policy adjustments. This rate cut is by 0.25 percentage points (25 basis points), adjusting the benchmark interest rate to a range of 4.50%-4.75%. This benchmark rate sets the interest rate for day-to-day lending between banks and also impacts consumer debt products such as mortgages, credit cards, and car loans.

This rate cut was a predicted move and was signalled multiple times by the Fed's policymakers. Notably, this decision was passed unanimously, contrasting with the previous rate cut, where there was one dissenting opinion.

The stock market reacted positively to the rate cut. The technology-heavy Nasdaq index rose by 1.5%, making it the biggest gainer among the major indices. Both the Nasdaq and the S&P 500 indices reached all-time highs, while Treasury yields fell following a sharp rise the previous day.

The Fed's statement indicated several changes in the way the economy is evaluated. Particularly, it emphasized that efforts to support the labor market while curbing inflation are balanced. This is a shift from the September statement, which expressed "greater confidence."

Fed officials suggested that the reason for the policy relaxation is that supporting employment has become as important a priority as curbing inflation. The labor market has somewhat softened; although the unemployment rate has risen, it is still at a low level. The economic assessment mentioned that "solid growth" is being sustained.

Fed Chair Jerome Powell mentioned that policy adjustments aim to help bring inflation back to a neutral stance while maintaining the strength of the economy and labor market. However, there is uncertainty about how much further rate cuts will be necessary. The U.S. GDP grew at an annual rate of 2.8% in the third quarter, with the fourth-quarter estimate at 2.4%.

Overall, the labor market is holding up well, but non-farm employment in October increased by 12,000 jobs. This was analyzed to be weakened due to storms in the Southeast and labor strikes.

There are also changes in the political backdrop. President-elect Donald Trump's policies are expected to challenge inflation. Trump has been critical of the central bank, and Chair Powell's term runs until early 2026. Powell stated that the new administration would not directly impact monetary policy.

There is ongoing discussion about the pace of future rate cuts. Traders anticipate that the Fed will implement another 0.25 percentage point rate cut in December and then pause in January to evaluate the policy's impact.

Despite these rate cuts by the Fed, the bond market is not reacting. Treasury yields have risen, and the 30-year mortgage rate has also increased to 6.8%.

The Fed's goal is to achieve a "soft landing" by lowering inflation while avoiding an economic recession. Current inflation indicators stand at 2.1% over the past 12 months, and core inflation, excluding food and energy, is at 2.7%.