The Federal Reserve unexpectedly cut interest rates by 50 basis points at its September 2024 interest rate meeting, exceeding some market expectations. This move demonstrates the Fed's confidence that inflation is effectively under control and also hopes to provide further support to the job market. Compared with the previous meeting, the meeting statement has undergone significant changes, reflecting the Fed's optimism about the economic situation.

According to the latest dot plot, the Fed expects its target rate center will fall to 4.4% this year, well below the 5.1% target at the June 2024 meeting. At the same time, the Federal Reserve also lowered its interest rate target for next year, indicating that it may adopt a more loose stance on future policy paths. However, Fed Chairman Powell once again emphasized at the press conference that there is no fixed preset path for future interest rate cuts, and policy adjustments will still depend on the performance of economic data and market dynamics from meeting to meeting. He also noted that despite the current positive economic outlook, policy flexibility remains critical.

In his speech, Powell was full of confidence in the U.S. economy and job market, and was still trying to maintain the vision of a "soft landing" that would avoid entering a recession if economic growth slows. We believe that this 50 basis point interest rate cut is a precautionary measure. The Federal Reserve hopes to continue to maintain stable economic growth and robust performance of the job market by taking early action. This also provides more room for flexibility in subsequent policies, with the Fed expected to make two more 25 basis point interest rate cuts during the year.

After interest rate cut expectations are realized, the short-term market may return to a "soft landing" trading mode. The downward space for U.S. bond interest rates is expected to be limited. As the market continues to digest the impact of this interest rate cut, the volatility of the U.S. stock market is likely to remain at a high level. However, certain sectors may benefit from this backdrop, such as biotech and real estate, which typically perform strongly during "soft landing" rate-cutting cycles.