Last night, many friends were waiting for the Fed's decision. The decision came out at 2 a.m., and the interest rate was cut by 25 basis points. The target range for the federal funds rate is now 4.00%-4.25%, in line with market expectations.
As expected, Miran, the new governor nominated by Trump himself, approved by Capitol Hill, and already sworn in, of course held a different opinion and was inclined to cut interest rates by 50 basis points. In fact, there is an even more interesting gossip point: I wonder if Trump will notice that Mr. Waller, one of the popular candidates for the next chairman, did not support the minority opinion of "cutting interest rates by 50 basis points" this time? The market's immediate reaction was a jump in the 10-year Treasury yield from 4.04% to below 4.01%. Gold prices fluctuated dramatically, with the S&P 500 and Dow Jones Industrial Average rising, while the US dollar index fell. Traders appeared to be increasing their bets on at least one more Fed rate cut this year. Subsequently, major Middle Eastern central banks essentially followed suit, lowering their rates by 25 basis points. We've discussed this before: when an event or data first hits the headlines, the market's immediate reaction is to the anticipated outcome of the action. But how should we react afterward? A crucial factor is how others comment on and interpret the data.
"Headlines" themselves won't have an immediate impact on the real world. It's the subsequent "analysis and interpretation" and "setting the tone" that tell everyone what kind of emotions to use to deal with them. Only then can you judge what emotions you should use, what "consensus" should be, and how to use this "consensus" next. Keynes said that stock picking is like a beauty pageant: it doesn't matter who you think is beautiful; only what everyone thinks is good is truly good. All you have to do is bet on other people's expectations, or adjust your bets.
So, back to the early morning FOMC, we initially saw a lot of more dovish comments, such as JPMorgan Chase: "The Federal Reserve's September policy meeting had only one dissenter, which was quite surprising."
Immediately afterwards, everyone's attention was focused on Mr. Powell's speech. Algorithms and machines took their positions and began to grasp key words: "pay attention to employment risks", "firmly uphold the independence of the Federal Reserve", "do not discuss politics", and emphasize that "it cannot be said that all job market slowdowns are caused by Trump's tariffs." In other words, the possibility of "tariff inflation" stubbornly existing has decreased, but "long-term inflation expectations are as solid as a rock", and so on and so forth, with ups and downs. I think the most important change, or characteristic, of Powell's speech this time is this: It's clear that he was reluctant to signal the start of a (continuous) rate cut cycle, instead emphasizing a "meeting-by-meeting" approach—rates could be cut this time, or raised again next time, with no fixed path. In other words, don't expect too much "forward guidance." However, the focus of this meeting did shift more toward "employment" (the Fed has two goals: "maximum employment" and "price stability"). There's a data-driven rationale for this. But it's also quite interesting from a sociopolitical perspective—the most important thing I've learned from watching the FOMC's announcements over the past few years is that people actually hate inflation more, extremely more, perhaps even more than they hate unemployment. Later, we indeed saw many more hawkish interpretations and comments, such as CNBC's commentary that the Fed expected only one rate cut in 2026, which was more conservative than market expectations. Then, after the market had grappled with these comments and interpretations for a while, it began to move in the opposite direction: the two-year Treasury yield rebounded, fully recovering the losses since the rate cut was announced, a sharp V-shaped reversal. More crucially, the 10-year yield returned to 4.08% (having previously fallen below 4% during trading)—this is even more important—after all, it's long-term interest rates that truly impact the real economy (and the US government's interest expenses). This fact serves as a reminder: an "expected" rate cut doesn't necessarily push down long-term yields, which are most crucial to the economy. This process is fascinating, so rather than focusing on a single data point or decision, it's better to focus on the subtle market changes before and after it occurs. It's like watching a TV series, waiting for a plot twist or a new climax. Actually, before everyone started paying attention to the meeting, a screenshot of two paragraphs circulated widely yesterday. I haven't carefully researched the source of these two paragraphs, but their content is nonetheless worth noting. The gist: Powell's opening words have become a codeword on Wall Street. If he says "good afternoon," it's likely he'll lean hawkish, signaling he's still concerned about inflation and won't let up on interest rate hikes. US stocks are likely to follow suit that day. If he starts with "hello everyone," the market perceives a soft landing and accommodative policy as the likely outcome. Historically, the S&P 500 has a greater than 60% chance of rising the next day. Therefore, institutions are now using AI to monitor his mouth movements. If a camera detects the sound of his lips pronouncing "g," the algorithm will short US Treasury futures within 0.3 seconds. If it detects the sound of his lips pronouncing "h," it automatically increases its position in risky assets. Actually, this isn't new. Many hedge funds, like Jump, have long been trading based on "alternative data" models; it's become a standard practice. It's just that even using lip syncing might seem a bit exaggerated, but even more outlandish data sources exist. Therefore, people tend to think finance is becoming increasingly "mysterious." Who says finance isn't metaphysics? That being said, who can say metaphysics isn't science? This practice of basing trading decisions on lip syncing, or using information that isn't, or can't be, conventionally considered scientific, is simply an evolution of the data type.
No matter what, the market is still made up of people (well, mostly humans, the rest are algorithms, but the algorithms are also people). Market fluctuations are ultimately driven by human behavior and decisions.
As long as you can figure out what drives these behaviors and decisions, what does it matter whether it's scientific information or Arabic numerals?
Hui Xin
Joy
Alex
Kikyo
Brian