Global Markets Disappointed by Fed's No-Cut Move

The Federal Reserve's feint fails to materialize, and the illusion of aggressive rate cuts is shattered!In September, the Federal Reserve's substantial rate cut of 50 basis points sent a "small shock"...

The Federal Reserve's feint fails to materialize, and the illusion of aggressive rate cuts is shattered!

In September, the Federal Reserve's substantial rate cut of 50 basis points sent a "small shock" to the world, seemingly declaring that the US dollar would rapidly weaken.

However, just as central banks around the world were following suit and accelerating their rate cuts, the Federal Reserve made a U-turn—switching back from a dovish to a hawkish stance.

The Federal Reserve has deceived the world; will it pause rate cuts in November? Why has the Federal Reserve's attitude changed so drastically? How should China respond?

The Federal Reserve makes a U-turn

Recently, former US Treasury Secretary Summers publicly stated:

The Federal Reserve's decision to cut rates by 50 basis points in September was a mistake.

Summers believes that the current US economy is not on the brink of recession as previously claimed, but is still in an upward trend.So the most appropriate action would be to wait until November to raise interest rates, and it would not be too late.

Why does Summers dare to say this?

The reason is that recently the United States announced a non-farm data that far exceeded expectations, seemingly indicating that the U.S. job market remains incredibly strong.

Specifically, in September, the United States added 254,000 non-farm jobs, the largest increase since March 2024, far higher than the expected 140,000.

At the same time, the U.S. unemployment rate in September fell to 4.1%, hitting a new low since June 2024.

In addition, on October 10, the United States also announced the September CPI data, which rose 2.4% year-on-year. Although it slowed down from the previous 2.5%, it still exceeded the market expectation of 2.3%.

Almost all data seem to imply that the Federal Reserve is no longer likely to aggressively cut interest rates by 50 basis points in November, and even whether it will choose to cut interest rates in November has become a question mark.

According to the Chicago Mercantile Exchange's FedWatch tool, the market's expectation that the Federal Reserve will keep interest rates unchanged in November has risen from 2.6% to 10.5%, and the probability of cutting interest rates by 25 basis points is close to 90%.

However, while the Federal Reserve is making a comeback, central banks around the world are turning one after another:For instance, the Bank of Korea announced on October 11th a reduction of the benchmark interest rate by 25 basis points to 3.25%, marking the first rate cut since the 2020 pandemic outbreak.

Take the Reserve Bank of India as another example; although it has just declared to continue maintaining the benchmark interest rate at 6.5% unchanged, it has shifted its policy stance to neutral.

For a time, whether the US dollar has truly entered a rate-cutting cycle has once again become an enigma.

"The Great Money Grab"

Why has the Federal Reserve suddenly changed its demeanor when it aggressively cut rates by 50 basis points just last month?

In reality, although the non-farm data in the United States for September was indeed exceptionally good, there should be skepticism about how much of it was inflated.

As early as the first half of this year, the US non-farm data had already undergone a significant revision, downwardly adjusted by nearly 820,000 people.

According to past experiences, this is actually the Federal Reserve's "consistent pattern"—to first release a very good employment report to manage market expectations, and then after some time, "revise as needed," with the Federal Reserve retaining all rights to interpretation.

So why did the Federal Reserve release such data, shifting from a dovish to a hawkish stance?Let's take a look at the timeline.

On September 18th, the Federal Reserve announced a rate cut of 50 basis points.

Immediately following, on September 24th, we unveiled a series of stimulus measures, with trillions of funds ready to be unleashed.

In less than a week, a variety of major moves were made, and to say it was not "premeditated" would probably not even convince a fool.

And as the Federal Reserve cut rates and U.S. dollar capital was preparing to flow globally at a critical moment, our major moves obviously took effect:

A host of international financial institutions began to fervently cheer for China, eager to invest real money into the Chinese market.

For example, JPMorgan announced its intention to increase holdings in Chinese companies such as China Merchants Bank and BYD, while Goldman Sachs also changed its tune to be optimistic about China's economy. Additionally, institutions like HSBC, Citigroup, BlackRock, and UBS have all raised their ratings for the Chinese stock market.

However, this raises a question: the rapid outflow of huge sums of money does not align with America's expectations.

Thus, we can observe the Federal Reserve making an emergency turn, almost explicitly telling global capital that the U.S. economy remains strong, and not to abandon us in favor of the East, as investing in the U.S. is equally an investment in the future.With the Federal Reserve's unexpected move, the "currency war" officially begins.