The US restarts interest rate cuts: How to position when the meltdown continues?

On September 17, 2025, the U.S. Federal Reserve (Fed) announced that it would lower the target range for the federal funds rate by 25 basis points to 4.00%-4.25%. This is the first time since December 2024 that the Fed has restarted the interest rate cut cycle, marking a turning point in the monetary policy from tightening to easing. This decision was not unexpected - even before the meeting, the market had priced in an 86% probability of a rate cut, but the signals behind it have sparked widespread discussion: signs of an economic slowdown are emerging, the job market is weak, the unemployment rate has risen to 4.3%, and although inflation has stabilized, it is still above the long-term target of 2%. Federal Reserve Chairman Jerome Powell emphasized at a press conference that this rate cut is a "risk management" measure aimed at balancing employment and price stability, rather than directly responding to a recession. According to the Federal Reserve's latest Summary of Economic Projections (SEP), committee members project the median federal funds rate will fall to 3.50%-3.75% by the end of 2025, implying two more quarter-point rate cuts this year, to be implemented at the October and December meetings. By 2026, the rate could fall further to 3.25%-3.50%. The "dot plot" shows that nine of the 19 members favor a year-end range of 3.50%-3.75%, with only one (presumably new governor Stephen Milan) favoring a more aggressive range of 2.75%-3.00%. These projections reflect the Fed's optimism about economic growth—the median GDP growth forecast for 2025 has been raised to 1.6%, up from 1.4% in June—but also imply uncertainty: political pressure, geopolitical risks, and a potential rebound in inflation could disrupt the pace.

If you are an investor, this round of interest rate cuts is undoubtedly a critical node. Over the past 25 years, the Federal Reserve's interest rate path has been like a roller coaster: after the Global Financial Crisis (GFC), interest rates were lowered to near zero to stimulate the recovery of the financial system; during the epidemic, it hit bottom again, driving asset prices soaring and mortgage rates falling below 3%. The loose policy triggered a surge in inflation, so the Federal Reserve turned to quantitative tightening (QT) and aggressive interest rate hikes, pushing interest rates to a peak of 5.25%-5.50%. In mid-2024, the policy shifted to a pause in interest rate hikes, and now interest rate cuts have been restarted, and the monetary environment has become loose again. This is not just an interest rate adjustment, but also a signal: the Federal Reserve prioritizes preventing employment risks rather than out-of-control inflation. Historical Mirror: Stock Market Performance Under Rate Cuts To understand the current situation, it's helpful to review history. Rate cuts are often a catalyst for the stock market, especially when the market is near all-time highs. According to JPMorgan Trading Desk data, since 1980, when the Federal Reserve initiated a rate-cutting cycle when the S&P 500 index was within 1% of its all-time high, the index has averaged a one-year gain of nearly 15%. As of September 17th, the S&P 500 closed at 6,619, just 0.1% away from its intraday record, perfectly fitting this pattern. JPMorgan analysts suggest that this "non-recessionary rate cut" would drive the index up approximately 17% over the next 12 months, consistent with its actual performance since 2024. More detailed statistics reinforce this view. LPL Financial analyzed the performance of the S&P 500 following the first rate cut of the past 50 years: the average return within one year was 4.9%, with a probability of positive returns of nearly 70%. However, the short-term reaction was mild—one month after the rate cut, the market rose by an average of only 0.1%, with a median of 0.4%, essentially a consolidation after the "sell-off news." Seeking Alpha data shows that since 1980, the median return of the S&P 500 following similar high-level rate cuts has been -0.31% (30 trading days), with an average of -1.20%. However, this is often short-term noise, and the long-term bull market continues.

Specific timeframes:

• By mid-October

  there's a 50% chance of an increase, with an average return of 0.1%. This suggests the market may trade sideways or undergo minor adjustments in the short term, making it suitable for conservative investors to wait and see.

• By mid-December

  there's a 77.3% chance of a rise above the September 17th level, with an average increase of 3.4% and a median of 5.5%. Historical data shows that the period just before Christmas often sees the peak of the "year-end effect," with capital inflows driving a rebound. By mid-March 2026, there's a 72.7% probability of positive returns, extending the benefits of easing. One year later (September 2026), there's a 100% historical win rate, with an average of 13.9% and a median of 9.8%. In extreme years, gains can reach 20%-30%, such as during the tech bull market of the 1990s. These figures aren't ironclad rules. Visual Capitalist notes that past rate-cutting cycles saw a wide range of returns, ranging from +36.5% to -36%, depending on the economic backdrop. The current environment is more similar to the "melt-up" of 1995-1999: low inflation, strong earnings, and technology-driven performance (such as AI). Data from BlackRock's multi-asset team shows that large-cap stocks (S&P 500) have, on average, outperformed small-cap stocks (Russell 2000) during rate-cutting cycles due to the latter's greater sensitivity to interest rates, though slowing earnings could offset dividends. If you're a beginner, don't rush to chase highs. Historical warning: The market reaction to rate cuts is muted in the early stages. Missing the opportunity could lead to a "buy-and-sell" situation by year-end. As an advanced strategy, consider writing covered calls on long positions: if the market moves sideways, you can still profit from the option premium. Data shows that this strategy can achieve annualized returns of 5%-8% during periods of low volatility. The Fed's "Firewall": Is a 20% Correction a V-Shaped Rebound? Market skeptics always argue that the stock market is overvalued, similar to the 2000 dot-com bubble; a recession is imminent, and the S&P 500 Shiller CAPE ratio has reached its third-highest level on record (after 1999-2000). David Rosenberg warns this portends a "mega-price bubble" and the possibility of negative 10-year returns. But history refutes the "this time is different" argument. In 2020, amid the pandemic, unemployment soared to 14.8%, and the economy fell into recession. Yet, the S&P 500 bucked the trend and rose 16% (including 18% in dividends). Why? The Fed printed $4 trillion, resumed quantitative easing, and decoupled the stock market from the economy. My view: A stock market decline of over 20% is unlikely to be sustained. The Federal Reserve has deemed the stock market "too big to fail." A 25% drop in the S&P 500 would trigger systemic risks—pension fund sell-offs, credit tightening, and a surge in bank bad debts. During the Powell era, the Fed pledged "asymmetric intervention": gradual interest rate hikes and swift rate cuts. By 2025, the M2 money supply had reached $22.12 trillion (July data, a year-on-year increase of 4.5%, a near three-year high), a record high. If the market crashes, the Fed will restart quantitative easing, printing trillions of dollars to create a V-shaped rebound. The lesson of 2020: After the March low, the index rebounded 50% in three months. Of course, risks remain. Leveraged investors should be wary: a 20%-25% pullback can instantly wipe out margin accounts. Recommendation: Limit your position size to 60%-70% and avoid deep leverage. Statistics show that excessive leverage has a survival rate of less than 30% in a bear market. Remember, the stock market is not about the economy—earnings growth is the core. The S&P 500 EPS is projected to be $325 in 2025 (LPL forecast). If AI investments pay off, valuations could expand by 23.5x, pushing the index to 7,640 points (a 30% increase). A Weak Dollar: A Tailwind for Gold, Silver, and Bitcoin. The flip side of rate cuts is a weaker dollar. After September 17, the US Dollar Index (DXY) briefly fell 0.3%, closing at 97.53 (September 19), down 3.18% year-to-date. Trading Economics data shows this is the worst first-half performance in 50 years, but a 40-year chart suggests significant downside potential: the DXY could fall below 95. Low interest rates reduce the dollar's appeal, driving capital flows into emerging markets and commodities. Comparing it with other fiat currencies is meaningless—as the video explains, gold is a more accurate measure of dollar depreciation. The current spot price of gold is $3,688.85 per ounce (September 19), up over 30% year-to-date. Interest rate cuts are a tailwind for gold: opportunity costs are lowered and safe-haven demand is rising. Deutsche Bank raised its 2026 average price to $4,000, while Goldman Sachs predicts $3,800 by year-end. LongForecast projects a price of $3,745 by the end of September, with an October high of $4,264. The reason? A surge in M2, with more devalued dollars chasing the limited gold supply. Similarly, silver prices followed suit, projected to reach $45/ounce by the end of the year. Bitcoin also benefited: as "digital gold," BTC appreciates an average of 25% during periods of dollar weakness. Currently trading at $70,000, if the DXY falls below 96, BTC could reach $80,000. The video emphasizes: Fiat currencies are foolish; gold is the true anchor. Inflation Concerns and Investment Strategies: Don't Let Cash Depreciate. The M2 money supply reached a record $22 trillion, signaling inflationary pressures. While the Federal Reserve is keeping inflation at 2.5%-2.7%, Trump's tariffs could push up CPI. Video Core: Don't sit back and watch your cash get eroded by inflation. Global GDP is projected to grow by 3% in 2025 (IMF forecast), and the US stock market's meltdown will continue: Yardeni Research says the S&P 500 could reach 10,000 points by 2030 (a 60% increase). The strategy is simple: buy on dips and hold onto quality assets.

  • Cash Buffer

    Keep six to twelve months of living expenses, and use money market funds (4%-5% annualized) for any short-term, large expenses. Diversification: 60% stocks (tech + consumer), 20% bonds, 10% gold/Bitcoin, and 10% cash. BlackRock recommends increasing allocations to alternative assets with low correlation to buffer volatility. Risk Management: A 20% correction is a buying opportunity. History shows that bullish trends aren't linear—there were three 10% corrections in the 1990s, but the bull market continued. This isn't a prediction, but a data-based perspective. The Federal Reserve's "printing press" has restarted, and the bull market continues. If you believe "this time is different," you'll be in the minority. Take action now, and don't let FOMO get you. But be cautious: while the market may be rigged, it's not risk-free. In 2025, opportunities and pitfalls coexist, and the choice is yours.