Monetary policy analysis: Why did the Fed’s interest rate cut fail to boost market sentiment?

In trading market analysis, fundamental analysis is an important method. It predicts the changing trend of asset prices through the interpretation of macroeconomic data, policy changes, industry trends and company financial reports. Among them, monetary policy analysis is a key link in fundamental analysis, which is directly related to the market’s capital cost, liquidity and trader expectations. EagleTrader will take the Fed’s latest rate cut as an example to share with traders the way monetary policy analysis and its impact on the market.

Federal recent interest rate cuts and operations

Recently, the Federal Reserve announced another 25 basis points in interest rates, adjusting the target range of the federal funds rate to between 4.25% and 4.50%. This decision was made against the backdrop of slowing global economic growth, easing inflationary pressures and intensifying volatility in financial markets. The Fed hopes to stimulate economic growth, increase employment levels and maintain price stability by cutting interest rates.

It is worth noting that despite the Fed’s measures to cut interest rates, the pace of interest rate cuts has slowed significantly. Since September this year, the Federal Reserve has cut interest rates three times in a row, but each cut is 25 basis points, far lower than the market’s previous expectations. In addition, the Federal Reserve also predicted that the rate cut in 2025 may narrow to 50 basis points at its monetary policy meeting on December 18, indicating limited room for interest rate cuts in the future.

Monetary Policy Analysis Method

1. Analysis of interest rate changes:

Interest rates are the core tool of monetary policy. The Federal Reserve affects market capital costs by adjusting the federal funds rate, which in turn affects investment and consumption. During the interest rate cut cycle, the cost of capital is reduced, which is conducive to corporate financing and residents’ consumption, thereby boosting economic growth. However, when the interest rate cut fails to achieve the expected effect, if the US stock market continues to be under pressure after this interest rate cut, traders need to pay attention to the impact of other factors on the market.

2. Policy expectations analysis:

Political expectations are an important source of market volatility. The Federal Reserve sends policy signals to the market through monetary policy meetings, statements and official speeches. Traders need to pay close attention to the Fed’s policy expectations, such as the pace of interest rate cuts, end-point interest rates and future policy directions. After this rate cut, the Federal Reserve expects the rate cut to narrow in 2025, which may have an important impact on market expectations.

3. Analysis of economic indicators:

Economic indicators are an important basis for judging the effectiveness of monetary policy. Macroeconomic data such as GDP growth rate, inflation rate, and unemployment rate, as well as market indicators such as consumer confidence index and manufacturing PMI, can all reflect the impact of monetary policy on the real economy. Traders need to combine these indicators to comprehensively judge the effectiveness and future trend of monetary policy.

4. Market sentiment analysis:

Market sentiment is a factor that cannot be ignored in monetary policy analysis. Although monetary policy has an important impact on the real economy, changes in market sentiment may also lead to market trends contrary to monetary policy expectations. For example, after this interest rate cut, the US stock market continues to be under pressure, indicating that market sentiment may be affected by other factors (such as geopolitical risks, corporate profitability, etc.).

What does this market reaction mean

After the Federal Reserve cut interest rates, the U.S. stock market did not show the expected rebound, but continued to be under pressure. The Dow Jones Industrial Average fell for nine consecutive trading days, setting the longest consecutive decline since 1974. This shows that although monetary policy has an important impact on the market, market trends are subject to many other factors.The combined effect of

For traders, this enlightens us:

Diverization Analysis:When conducting monetary policy analysis, comprehensive judgments need to be made based on various factors such as interest rate changes, policy expectations, economic indicators and market sentiment.

Flexible response: Market trends may be affected by a variety of factors, and traders need to maintain flexibility and adjust their investment strategies in a timely manner.

Risk Management:In an uncertain market environment, risk management is particularly important. Traders need to pay attention to market risks and allocate assets reasonably to reduce investment risks.

The Federal Reserve’s monetary policy adjustments, especially the decision to cut interest rates, have a complex impact on the foreign exchange market. Monetary policy analysis provides a framework for foreign exchange traders to understand and predict the impact of central bank policy changes on currency value and market sentiment. By deeply analyzing the types, impacts and spillover effects of monetary policy, traders can formulate more effective trading strategies, manage risks, and seize market opportunities.