On September 17 local time, the Federal Reserve decided to cut the federal funds rate target range by 25 basis points to between 4.00% and 4.25%. This marks the Fed's first rate cut since December 2024. Powell stated there was no need to rapidly adjust rates, describing today's move as a "risk management" rate cut, suggesting it does not signal the beginning of a sustained easing cycle.

This rate cut was made against the backdrop of continuous pressure from the White House and did not follow traditional clear decision-making pathways. Instead, it represents a decision made after balancing inflation and employment risks, which Powell termed a "risk management rate cut" - essentially a preemptive measure. The risks primarily stem from the US labor market. Currently, the US employment market exhibits a "strange balance" - a dynamic equilibrium caused by simultaneous declines in both labor supply and demand.

Earlier this month, the Bureau of Labor Statistics (BLS) released non-farm annual benchmark revision data, showing that job creation for the year ending in March was revised down by 911,000, equivalent to an average monthly reduction of nearly 76,000 jobs. In August, non-farm employment added only 22,000 positions, far below the expected 75,000, while the unemployment rate rose from 4.2% in July to 4.3% in August. The US labor market is showing signs of deceleration.

However, the degree of weakness in the US labor market may be masked by certain disruptive factors, such as reduced labor supply due to US deportation of immigrants and declining labor force participation rates over the past year. This contraction in labor supply offsets part of the decline in labor market demand, meaning actual US labor demand may be falling faster than apparent. Currently, the US employment market maintains a strange balance characterized by "low hiring, low layoffs." However, if US companies begin layoffs due to economic downturn, coupled with a "no hiring" environment, unemployment rates could rapidly surge. To hedge against this risk, the Fed attempts to stabilize expectations by providing market logic and an overall interest rate path through rate cuts.

Nevertheless, US inflation risks have not been eliminated. Over the 12 months ending in August, the US Personal Consumption Expenditures (PCE) price index rose 2.7%, while core PCE excluding food and energy increased 2.9%. Powell attributes this primarily to rising goods price inflation, while services price inflation continues to decelerate. Short-term inflation indicators show volatility, partly due to the impact of US tariffs. However, the Fed believes inflation risks will continue to decline, partly because the labor market has weakened, US GDP growth is slowing, and the impact of US tariffs on inflation may be one-time and unsustainable.

In the short term, US inflation risks lean upward while employment risks lean downward. Although the Fed made the decision to cut rates, it provided no clear direction, instead offering contradictory explanations: cutting rates while predicting economic growth and rising inflation, attempting to present a "more balanced" stance based on contradictions. This has consequently created market confusion.

The Fed's denial of entering a rate-cutting cycle brings uncertainty, combined with US stagflation risks and market concerns about Fed independence, leading international capital to seek "safe havens," with China becoming a primary destination. A report from the International Financial Institute (IIF) shows that foreign investors poured nearly $45 billion into emerging market stock and bond portfolios in August, the highest level in nearly a year, with approximately $39 billion flowing net into China. After the Fed's rate cut, the China-US interest rate differential is expected to narrow further, and factors such as large international capital inflows to China and increased foreign exchange settlements by export companies will jointly push up the RMB exchange rate, which in turn will attract more foreign capital.

Against this backdrop, China's monetary policy needs careful response. Currently, the narrowing China-US interest rate differential provides greater room for rate cuts, but further rate cuts would increase pressure on commercial bank interest margins, potentially leading to increased bank risk appetite while incentivizing depositors to accelerate the migration of deposits. China's consumption and investment show low interest rate elasticity, making it difficult for rate cuts to stimulate investment and consumption. Therefore, careful consideration must be given to international and domestic liquidity environments, as well as numerous structural issues between domestic supply and demand, when formulating responses.