The Fed's interest rate cut cycle has led to mixed market reactions: U.S. stocks fell, Asian stocks rose across the board, and Bitcoin remains watchful.

The Federal Open Market Committee (FOMC) passed the interest rate cut decision with a vote of 11 to 1, with the only dissenting vote coming from newly appointed member of the Federal Reserve Board of Governors, Stephen Moore, a close ally of Trump, who advocated for a larger cut of 50 basis points.

Policymakers expect two more 25 basis point rate cuts within the year, which is one more than the June forecast. Fed Chairman Powell referred to this as a "risk management rate cut," emphasizing that the policy is not a predetermined path and will be decided "meeting by meeting."

01 Interest Rate Decision: Expected Rate Cut, Divergent Dot Plot

The Fed announced a 25 basis point rate cut on September 17, 2025, lowering the target range for the federal funds rate from 4.25%-4.50% to 4.00%-4.25%. This is the first rate cut since December 2024, which is basically in line with market expectations.

The resolution was not passed unanimously. The newly appointed board member Stephen Milan cast the only dissenting vote, advocating for a deeper cut of 50 basis points. In the Fed's rate outlook "dot plot," his prediction is the most aggressive, expecting rates to fall to 2.875% by the end of 2025, well below the consensus of his colleagues.

The dot plot shows that most policymakers expect two more rate cuts in 2025, highlighting the central bank's shift to support a cooling labor market while remaining focused on persistent inflation. The median forecast from the Fed indicates a total rate cut of 50 basis points in 2025, with an additional 25 basis points each in 2026 and 2027.

02 Market Reaction: US Stocks Rise and Fall, Dollar Fluctuates Stronger

After the interest rate cut decision was announced, the market experienced a typical "buy the expectation, sell the news" trend. The major U.S. stock indices briefly rose, with the Dow Jones achieving a maximum increase of 1.1%, the Nasdaq turning positive, and the S&P 500 reaching a maximum increase of 0.27%.

However, during Powell's speech, U.S. stocks collectively retreated. Ultimately, the Dow rose by 0.57%, the Nasdaq fell by 0.33%, and the S&P 500 declined by 0.1%. After trading fluctuations on Wednesday, Wall Street indices closed mixed.

The U.S. dollar index experienced significant fluctuations during the trading session, closing up 0.4% at 97.0307. Commodities generally closed lower, with spot gold in London dropping 0.83% and spot silver in London falling 2.14%.

The yield on the 10-year U.S. Treasury bond quickly fell below 4%, sliding from 4.04% down to below 4%. The response from the bond market was direct, indicating investors' expectations for the future path of interest rate cuts.

03 Asian Markets: Stock Markets Generally Rise, Semiconductor Sector Leads

On September 18, Asian markets reacted positively to the Fed's interest rate cut. Stock markets in Japan, China, and South Korea all rose, indicating a slight recovery in market sentiment.

The A-share market performed strongly, with the three major stock indices closing higher at noon. As of the midday close, the Shanghai Composite Index was at 3893.95 points, up 0.45%; the Shenzhen Component Index was at 13319.70 points, up 0.79%; and the ChiNext Index was at 3162.30 points, up 0.49%.

The semiconductor sector continues to be strong, with Huicheng Co., Ltd. hitting a 20cm limit up. The chip industry chain rose throughout the day, with SMIC reaching a historic high, touching a peak of 120.8 yuan per share during the session. By the close, SMIC A-shares rose by 6.93%, closing at 117.39 yuan per share.

The battery sector was equally impressive, with CATL hitting a historical high, reaching a maximum of 381.88 yuan per share intraday and closing at 377.1 yuan per share, still up 6.7%.

04 Cryptocurrency: Tepid Response, Awaiting Future Momentum

Compared to traditional markets, cryptocurrencies have reacted relatively mildly to the Fed's interest rate cut. Bitcoin (BTC) and most major tokens remained stable on Wednesday, despite the Fed's anticipated 25 basis point cut.

The trading price of Bitcoin after the announcement was $116,000, although it had risen to over $117,000 before the FOMC meeting. Altcoins also showed a slight positive reaction, with Ethereum (ETH), XRP, and Solana (SOL) all increasing by just over 2%.

This subdued reaction indicates that investors have largely digested the expectations of a rate cut. Andre Dragosch, Head of European Research at Bitwise, pointed out that the correlation between Bitcoin and the S&P 500 index has risen back to 0.88, showing the synchronization between the two markets once again.

Historical data shows that during a preventive rate cut cycle, the US stock market rarely experiences significant declines, and interest rate-sensitive sectors often perform well. If the S&P 500 gains 15% in the next year due to rate cuts, Bitcoin might see a similar increase, as its correlation with the stock market has increased in recent years.

05 Historical Comparison: Asset Performance During Previous Interest Rate Cut Cycles

Looking back at history, since 2000, the Fed has experienced four rate-cutting cycles. The first occurred from 2001 to 2003, influenced by the burst of the internet bubble and terrorist attacks; the second from 2007 to 2008, with the collapse of the real estate market and the global financial crisis causing interest rates to drop to zero; the third began in July 2019, in response to trade tensions and low inflation, and was significantly cut again in 2020 due to the COVID-19 pandemic; the most recent one started in September 2024.

Statistics show that during each rate cut cycle, the short-term fluctuation patterns of the three major U.S. stock indices are not obvious, but in the long run, technology growth stocks have a higher probability of outperforming cyclical value stocks. Among commodities, gold prices have significantly risen during rate cut cycles, while industrial metals and energy prices are mainly down.

Several institutions believe that this interest rate cut cycle is different from the previous three, and both A-shares and Hong Kong stocks may perform better. Huaxin Securities anticipates that this round of interest rate cuts will be deeper and longer, with global liquidity remaining abundant, driving the performance of risk assets.

06 Policy Outlook: The Game Between the Independence of the Fed and Political Pressure

This interest rate decision exposed the political pressure facing the Fed's independence. Trump publicly called out multiple times before the meeting, stating that Powell is "a complete disaster," demanding "immediate and significant rate cuts," and even suggesting a single cut of 50 basis points.

The newly appointed member of the Fed, Stephen Moore, cast the only dissenting vote - he supported a 50 basis point rate cut. This key figure, nominated by Trump, participated in the vote less than a day after taking office.

Lu Zhe from Dongwu Securities pointed out that Trump is gradually reshaping the monetary policy framework by controlling key positions in the FOMC. If the future chairperson is also replaced with a dove, along with a continued dovish policy stance, the US may replay the script of the "Great Stagflation" of the 1970s.

Tianfeng Securities' Wu Kaida also warned that once the market believes the Fed can no longer independently suppress inflation, the credibility of the dollar will be damaged, and overseas investors may accelerate "de-dollarization."

07 Investment Strategy: Risk Assets Remain Attractive, Focus on Interest Rate Sensitive Sectors

Despite mixed market reactions, the Fed's interest rate cuts have still created a favorable environment for risk assets. Research from CITIC Securities shows that during a preventive interest rate cut cycle, U.S. stocks are unlikely to experience significant declines, and interest rate-sensitive sectors often perform well.

The three months following a rate cut are usually an active period for "U.S. stock rate cut trading." Although there may be profit-taking pressure in the short term, the logic of support remains due to geopolitical risks combined with monetary easing.

For Chinese assets, Yang Delong from Qianhai Kaiyuan believes that the Fed's interest rate cuts could become a catalyst for the "golden September and silver October" market in A-shares. Although the room for domestic interest rate cuts is limited, it is still possible to release liquidity through LPR reductions or reserve requirement ratio cuts.

The Chen Guo team from Eastmoney Securities found that during each preventive rate cut by the Fed, the growth sectors and interest rate-sensitive industries of A-shares and Hong Kong stocks often benefit, especially in areas like AI computing power, semiconductors, innovative drugs, and robotics.

08 Future Outlook: The path of easing has been opened, but uncertainty remains.

The Fed's interest rate cut this time is not the end, but the beginning. The dot plot shows that there will be a cumulative cut of 50 basis points by 2025, and an additional 25 basis points cut each in 2026 and 2027. This means that the path for easing has been opened up.

However, whether the pace and amplitude will be affected by White House intervention will become the biggest uncertainty variable in the future. ING analysts stated: "The market does not believe these mild soft landing forecasts and thinks the Fed may need to take more action, currently expecting 2-3 more rate cuts than the Fed's predictions."

Powell emphasized at the press conference that the policy is not on a preset course and that future decisions will be made on a meeting-by-meeting basis based on data. He noted that the slowdown in economic growth and the increase in employment risks are the main considerations.

For investors, it is essential to closely monitor changes in U.S. economic data, speeches by Fed officials, and the progress of China-U.S. trade negotiations, as these factors will influence market direction and asset allocation strategies.

Conclusion

The Fed's interest rate cut of 25 basis points landed as expected, but the market reaction reveals the contradictions and divergences in investors' minds. The performance of US stocks soaring and then retreating demonstrates the classic market trend of "buy the expectation, sell the fact" once again, while the positive response from the Asian market reflects optimistic expectations of a shift in global liquidity.

The lackluster response of the cryptocurrency market is surprising, but it also reflects the deepening integration of digital assets with traditional financial markets. Historical data shows that risk assets generally benefit during interest rate cuts, but short-term volatility is hard to avoid.

The interplay between the independence of the Fed and political pressure will become a key variable affecting future monetary policy. As Trump reshapes the structure of the Fed by appointing dovish officials, US monetary policy may face more uncertainty, and investors need to be prepared for various possibilities.

In the coming months, global markets will seek balance between loose expectations and economic realities, and volatility may remain high. But one thing is certain: against the backdrop of central banks around the world shifting to easing, risk assets remain attractive, especially the interest rate-sensitive technology growth sector.