Introduction
Amidst the backdrop of global economic recovery and uncertainty, the Federal Reserve's monetary policy direction continues to weigh on investors' minds. As of August 25, 2025, according to the latest data from the CME FedWatch tool, the next Federal Open Market Committee (FOMC) meeting will be held on September 17, 2025. Currently, there is an approximately 82.9% probability that the Fed will cut interest rates by 25 basis points (bps), while the probability of keeping rates unchanged is only around 17.1%. This expectation is consistent with fluctuations over the past month, gradually increasing from a low probability at the beginning of the year to the current high. Other sources also indicate a similar trend, such as an 87.3% probability of a rate cut, reflecting market concerns about an economic slowdown. Federal Reserve interest rate cuts are not new, but their consequences are multifaceted, including for the stock market, precious metals (such as gold and silver), cryptocurrencies (such as Bitcoin), the bond market, consumer interest rates, and inflationary pressures. This article provides an in-depth analysis and commentary on these impacts based on historical data and current market dynamics. It is worth noting that even if there is no rate cut in September, the October meeting will be the next critical juncture, and a rate cut is inevitable. Historical experience shows that rate cuts often signal the start of loose monetary policy, which will boost asset prices but may also exacerbate inflationary risks. Impact on the Stock Market The impact of the Federal Reserve's rate cut on the stock market is one of the most pressing concerns among investors. Historically, when interest rate cuts occur near all-time highs (within 2% of their ATH), market performance exhibits short-term volatility and long-term positive trends. Based on historical data, the stock market has fallen an average of 0.2% after one month, remaining virtually flat; after three months, it has risen 2.1%; after six months, it has risen 3.8%; and after twelve months, it has averaged a 13.9% gain. Even more strikingly, within this twelve-month timeframe, the stock market has achieved positive returns 100% of the time. This means that if investors wait on the sidelines hoping for a market crash, time will increasingly work against them. Taking the current market as an example, the stock market has already reached new highs several times in the first half of 2025, with technology and growth stocks leading the gains. If a rate cut is implemented in September, there may be short-term market volatility as investors have already priced in some of the positive news. However, in the medium and long term, rate cuts will reduce corporate financing costs, stimulate investment and consumption, and drive corporate profit growth. Commentary: This historical pattern isn't a hard and fast rule, but given the current abundance of global liquidity and the drive from emerging technologies like AI, the likelihood of this being different is low. Instead, we may be in a "great meltup," with money printing in full swing and the stock market continuing to benefit. However, risks should not be ignored. Cutting interest rates too quickly could trigger an asset bubble to burst. Investors should note that the probability of a stock market rally after one month is only 45%, rising to 75% after three months and 100% after twelve months. Therefore, while short-term investment in dips is recommended, long-term investment remains paramount. For example, a 30-year chart of the S&P 500 shows that each easing cycle has been accompanied by new highs, which is closely related to the inflationary effect of interest rate cuts. Impact on Gold, Silver, and Bitcoin: Interest rate cuts are often viewed as inflationary signals, directly benefiting non-yielding assets like gold, silver, and Bitcoin. Recently, implications from the Jackson Hole conference (though it took place in 2024, its impact continues to this day) have sent gold prices soaring. Gold prices haven't truly appreciated over the past 30 years, but rather as a result of a depreciation of the US dollar. As expectations of rate cuts grow, gold prices have approached recent highs, and silver has risen to over $39 per ounce. Bitcoin and altcoins have also rebounded, as rate cuts weaken the US dollar, driving gains in commodities and risky assets. Why are rate cuts inflationary? Simply put, lower interest rates encourage borrowing and spending, increasing the money supply. Even if some question the expansion of the money supply (M2), the fact is that it is already growing. Commentary: This is not a coincidence; it's the inevitable consequence of monetary policy. In a weak dollar environment, gold's value as a safe-haven asset is heightened. Bitcoin, as "digital gold," performs exceptionally well during inflationary periods due to its scarcity and decentralization. Historical data shows that during interest rate cut cycles, gold and silver prices rise by an average of 15-20%, with Bitcoin's gains even more significant, often exceeding 50%. Current market dynamics support this view. With the decline in the US dollar index, commodity prices are generally rising. If the Federal Reserve shifts to quantitative easing (QE), this effect is expected to be further amplified in 2026. My view is that investors should not doubt this trend but should position themselves early. Skeptics can review their analysis video from five months ago, which explains in detail how interest rate cuts inflate asset prices. Impact on the Bond Market: The bond market is the most direct transmission channel for the Federal Reserve's policies. Expectations of rate cuts have led to a decline in bond yields, particularly on short-term Treasury bonds. The 3-month Treasury bill yield has fallen since Jackson Hole, facilitating short-term government borrowing. The 10-year Treasury bond yield has also continued to decline, closely correlated with mortgage rates. While the 30-year bond yield has been less affected, it could be pushed down further if the Fed expands its balance sheet. This is positive for government finances. President Trump has repeatedly urged the Federal Reserve to cut interest rates to reduce interest expenses. Given the current massive US debt, a rate cut would alleviate pressure. However, for investors, rising bond prices (and falling yields) present opportunities for capital gains from holding long-term bonds. On the other hand, rapid rate cuts could distort markets and increase duration risk. Overall, the bond market will enter an era of low yields, stimulating the economy but also challenging income-seeking institutions like pension funds. Historical correlations show a strong correlation between the Fed funds rate and the 10-year yield, and rate cuts will gradually be transmitted throughout the yield curve. Impact on Consumer Interest Rates The trickle-down effect of rate cuts will benefit consumers. Mortgage rates have fallen to their lowest point this year, in line with the 10-year Treasury yield. Auto loan and credit card rates are also expected to fall, although credit card rates will remain high (averaging over 20%). Meanwhile, yields on savings accounts and CDs will decline, impacting savers' returns. Taking specific data as an example, past charts show that for every 25 basis points reduction in the Federal Reserve's funds rate, mortgage rates fall by an average of 15-20 basis points. This will stimulate the real estate market and push up home prices, as lower monthly payments attract buyers. Similarly, lower interest rates will boost auto sales. Commentary: This is a double-edged sword. On the one hand, lower borrowing costs stimulate consumption and promote economic growth; on the other hand, it exacerbates debt accumulation and may trigger a future crisis. For brokerage accounts such as ESV, yields will decrease with rate cuts. Investors need to adjust their strategies and shift toward stocks or alternative assets. Overall, rate cuts are a boon for middle- and low-income groups, but pose a challenge for retirees relying on fixed income. Impact on Inflation and the Overall Economy: The core consequence of interest rate cuts is inflationary pressure. Loose monetary policy weakens the dollar, leading to higher import prices and driving up overall prices. Historically, inflation has risen by an average of 1-2% following rate cuts. Currently, with monetary expansion already a reality, combined with geopolitical risks, inflation could return. The Fed's "rate cuts first, then quantitative easing" approach will further devalue the dollar. Official statements from Jackson Hole suggest they are preparing for easing. This isn't panic; it's reality. Asset price inflation will continue, but we must be wary of the risk of stagflation. If a soft landing fails, rate cuts may not be enough to reverse the recession. Interest rate cuts will benefit risky assets but increase systemic risk. Investors should diversify their portfolios and consider gold and Bitcoin as hedges. Governments will benefit, but long-term debt sustainability is a concern. Conclusion: The Fed's rate cut marks a turning point in the economic cycle, with consequences far beyond the surface. Based on historical and current data, the stock market is bullish in the long term, benefiting gold, silver, and Bitcoin. Bond and consumer interest rates are falling, but inflation risks are rising. Investors should exercise caution and seize opportunities rather than wait for a crash. Looking ahead, easing policies will dominate, but while there are voices claiming "this time is different," they are often outmatched by the data. Ultimately, monetary policy is a double-edged sword, requiring a balance between growth and stability.
Catherine
Joy
Weatherly
Kikyo
Anais