The Federal Reserve cuts interest rates by 50 basis points, U.S. stocks, U.S. bonds, and gold surge in the short term, the U.S. dollar falls, and the trend reverses after a major shock

On Wednesday, Eastern Time, the highly anticipated September interest rate decision by the Federal Reserve took place. The Federal Reserve ultimately chose a more dovish and aggressive 50 basis point rate cut. Major assets experienced significant volatility following the release of the September statement by the Federal Reserve.

Before the Federal Reserve Interest Rate Statement

In the afternoon on Wednesday, Eastern Time, the market awaited the announcement of the magnitude of the first rate cut in this easing cycle by the Federal Reserve. Before the Federal Reserve decision statement was released, the U.S. stock market was relatively flat, U.S. bond yields rose intraday, gold fell intraday, and the U.S. dollar index slightly declined:

• The S&P 500, Dow Jones, and Nasdaq were relatively flat, with the Philadelphia Semiconductor Index down 0.1% and the Philadelphia Bank Index up over 0.1%.
• The yield on the 10-year U.S. Treasury note rose by 3.4 basis points to 3.68%. The yield on the 2-year U.S. Treasury note rose by 3.7 basis points to 3.64%.
• Spot gold turned lower, falling below $2570.
• The ICE U.S. Dollar Index fell by 0.06% to 100.830 points.

After the Federal Reserve Interest Rate Statement

At 2:00 p.m. Eastern Time, the Federal Reserve announced the September interest rate decision, revealing a 50 basis point rate cut.

The dot plot shows that the Federal Reserve is expected to cut rates by another 50 basis points this year, but the situation is more tense: 10 officials expect a rate cut of 100 basis points or more by 2024, while 9 officials expect a cut of 75 basis points or lower by 2024. Additionally, for the first time since 2005, a board member dissented against the Federal Reserve's rate cut decision, with Board Member Bowman only hoping for a 25 basis point cut.

The 50 basis point rate cut by the Federal Reserve led to a sharp short-term reaction in the market shortly after 2:00 p.m. Eastern Time, with U.S. stocks and gold surging, U.S. bond yields plummeting, and the U.S. dollar weakening:

• U.S. stocks surged in the short term, with the S&P 500 rising by about 1% at one point, the Dow Jones up by about 375 points, and the Nasdaq 100 rising by over 1.1%.
• The yield on the 10-year U.S. Treasury note plunged from above 3.69% to below 3.64%, reversing intraday. The yield on the 2-year U.S. Treasury note dropped from above 3.64% to below 3.54%.
• Gold prices rose by about $20 in the short term, reaching $2587.57 per ounce, approaching the historical high of $2589.70 set on September 16. Spot gold continued to rise, surpassing the $2590 per ounce level, hitting a historical high, and rising by over 0.7% intraday.
• The U.S. dollar index fell by 40 points. The British pound rose to 1.3287 against the U.S. dollar, reaching a new high since March 2022.

However, about 13 minutes after the statement was released, U.S. stocks almost gave back all the gains made after the rate announcement, the drop in U.S. bond yields significantly narrowed, the U.S. dollar rebounded slightly from its intraday low after the statement, and gold remained relatively strong. Some analysts mentioned that the larger rate cut raised questions about the health of the U.S. economy.

Subsequently, after Federal Reserve Chairman Powell's press conference began, the trends of U.S. stocks, U.S. bonds, and the U.S. dollar reversed once again. During this period, major assets continued the trends seen right after the rate statement was released, with U.S. stocks, U.S. bonds, and gold rising, and the U.S. dollar falling.

After Powell's Press Conference

After Powell's press conference began, U.S. stocks rose; spot gold rose above the $2600 level, hitting a historical high; the ICE U.S. Dollar Index fell by over 0.5%, hitting a daily low of 100.307 points; Offshore RMB rose above 7.07 yuan, hitting a daily high, with an intraday increase of about 400 points, exceeding 0.5%.

Traders are increasing their bets on the extent of easing. The yield on the sensitive U.S. two-year Treasury bond fell by 7 basis points to 3.53% at one point. Traders are betting that the Federal Reserve will cut interest rates by about 123 basis points by the end of 2024, higher than the approximately 112 basis points before the Fed's decision was announced.

Powell said at a press conference that no one should think that the 50 basis point rate cut on Wednesday is a new pace. His personal view is that it will not return to the previous low level of neutral interest rates.

During the press conference, the trend of major assets reversed:

• The three major U.S. stock indexes fluctuated significantly, with intraday gains being completely wiped out during the press conference and turning into declines, then rising again. However, by the end of trading, about 40 minutes after the press conference ended, all three major U.S. stock indexes closed lower.
• The yield on the U.S. two-year Treasury bond remained around 3.6%, hitting a daily low of 3.5377% when the rate cut was announced, down from the daily high of 3.6590% set during the early trading session.
• Spot gold rose and then fell back, hitting a daily low of $2553.50 after the press conference, significantly lower than the historical high of $2600.16 set at the beginning of the press conference.
• The ICE U.S. Dollar Index rose back above 100.8, with the overall intraday decline narrowing to less than 0.1%. Powell hit a daily low of 100.215 points at the start of the press conference.

Major Asset Trends Chart

The following chart shows the full-day trend of U.S. stocks:

The following chart shows the full-day trend of the 10-year U.S. Treasury bond:

The following chart shows the full-day trend of gold:

The following chart shows the full-day trend of the U.S. dollar: