Will the interest rate cut in September be 25 basis points or 50? How is the after-market?

First, state the conclusion:

 

Unless there is a big drop like 312, it is highly likely to be a 25 basis point interest rate cut.

 

If a 25 basis point interest rate cut is announced in September, it is in line with expectations. The bearish and bullish factors are not very clear, and we still need to look at some economic indicators, mainly the non-farm payroll data tomorrow night.

 

3. If a 50 basis point interest rate cut is announced in September, it is not good news. It means the economy is in recession, which is bad news.

 

4. It is impossible to raise interest rates, and the probability of not cutting interest rates is almost zero.

 

Reviewing history

 

Looking back at the first month of the Federal Reserve's recent interest rate cut cycle:

 

On January 3, 2001, interest rates were cut by 50 basis points, lowering the federal funds rate from 6.5% to 6.0%. At that time, it was the famous economic recession - the "Internet bubble".

 

On September 18, 2007, interest rates were cut by 50 basis points, lowering the federal funds rate from 5.25% to 4.75%. At that time, there was a famous economic recession - the "subprime loan crisis".

 

On July 31, 2019, interest rates were cut by 25 basis points, lowering the federal funds rate from 2.25% -2.50% to 2.00% -2.25%. At that time, the economy was relatively normal.

 

On March 3, 2020, the interest rate was cut by 25 basis points, reducing it from 1.50% -1.75% to 1.00% -1.25%. At that time, the epidemic broke out, and after the interest rate cut, the US stock market experienced several circuit breakers, and the currency market welcomed 312.

 

Writing up to this point, I actually hope for a 50 basis point interest rate cut in September, followed by a 312 purge, and then a new bull market.

 

If the interest rate is cut by 50 basis points in September

 

In 2001 and 2007, interest rates were also consistently high. However, there was one difference: QE was not a tool at that time. QE was a Monetary Policy that began to be implemented after the subprime mortgage crisis spread in 2008. Therefore, after the sustained high interest rates at that time, the intensity of interest rate cuts was relatively greater. Nowadays, the Federal Reserve can lower interest rates and conduct appropriate QE for comprehensive regulation. Therefore, it may not be necessary to cut interest rates heavily in the early stage.

 

Even if tomorrow night's non-farm payroll data is not ideal, Brother Bee's view is that interest rates will still be cut by 25 basis points. Because: although the impact of QE is not as great as interest rate cuts, for the US, the impact of QE may be more direct than interest rate cuts. This includes the US real economy, US Treasury bonds, etc.

 

If interest rates are cut by 50 basis points for the first time, it is equivalent to acknowledging an economic recession or even an economic crisis. Cutting interest rates by 50 basis points can easily create anxiety in the market, not only affecting speculative markets such as currency and US stocks, but also having a certain impact on the real economy. The expectation of an economic recession will cause consumers to reduce spending, and producers will not dare to expand production too much, which may further exacerbate the economic recession.

 

In an environment like 312, there is already anxiety. Of course, the goal is still to suppress the crisis, so March 2020 was a 50 basis point interest rate cut.

 

Therefore, even if the non-farm payroll data on September 6th is not ideal, the Federal Reserve will try to be stubborn and not admit it. Last month, Powell did not acknowledge the economic recession signal of the "Sam rule".

 

Japan

 

Brother Bee even believes that even if there is a reappearance of the market on August 5 last month, it will not cut interest rates by 50 basis points.

 

Due to the interest rate hike on August 5th, which was mainly due to the Japanese yen's interest rate hike, if the Federal Reserve increases its interest rate cuts, it will further increase the exchange rate difference between the US dollar and the Japanese yen in the short term, further exacerbate the outflow of assets in the US dollar market, and be more unfavorable to the US stock market and other markets.

 

Write at the end

 

Therefore, considering the availability of comprehensive QE tools, the impact on market sentiment, and the possibility of Japan raising interest rates, the possibility of a 50 basis point rate cut in September is very small, and it is most likely a 25 basis point rate cut.

 

So, is a 25 basis point interest rate cut in line with expectations and good news? Or is the good news turned into bad news?

 

First, focus on tomorrow night's non-farm payroll data. If the unemployment rate continues to rise and economic recession expectations strengthen, it may be bearish. If the unemployment rate falls, it may be bullish.

 

Finally, whether it is a soft landing or a hard landing, the market will probably be in suspense, and the bull market may be difficult to start. It is estimated that it will take until the expectation of economic recession gradually weakens and the economy gradually recovers to see the bull market.

 

Buy small when there is a small drop, buy big when there is a big drop, mainly buy big cakes. After confirming the bottom, it is safer to switch to counterfeit products on the right side.

 

It is not recommended to go all in, as this round of market has been quite bumpy. Keep an appropriate amount of U and pancakes, first for unexpected needs, and second for some reassurance. (The experience of those who have been through it is that when a bull market comes, the U in hand is not lacking in opportunities.)