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Home/ Investment & Personal Finance/ Cheong Hong Yuan: The Economic Logic Behind the Federal Reserve's Interest Rate Decisions and the Stock Market's Reaction

Cheong Hong Yuan: The Economic Logic Behind the Federal Reserve's Interest Rate Decisions and the Stock Market's Reac... - 1 views

started by anonymous on 31 Oct 23
  • anonymous
    When we talk about the global financial markets, the US economy and its monetary policy undoubtedly serve as important references. Recently, the Federal Reserve's interest rate policy has attracted widespread attention from experts and investors. Among them, the views of Nobel laureate Paul Romer have sparked heated discussions in the market. Cheong Hong Yuan provides his professional insights on this focal point.

    In the past period of time, in order to curb inflation, the Federal Reserve has implemented a series of interest rate hikes, which are seen as a manifestation of the Fed's hawkish stance. However, as many economists have pointed out, it now seems to be a crucial moment for interest rate cuts. This view seems even more plausible, especially when considering that the US GDP annualized growth rate for the third quarter reached 4.9%, more than double that of the previous quarter. Although inflation pressure has always been a key factor for the Fed to consider, continuous interest rate hikes do not seem to be a rational choice in the current economic environment.

    Paul Romer explicitly stated in an interview that continuing to raise interest rates now is simply "crazy." He proposed that the Fed should consider cutting rates as it is possible for them to achieve their 2% inflation target within the next year. This view aligns with the predictions of many economists, who generally expect the Fed to maintain the benchmark interest rate at its current level in future FOMC meetings.

    For investors, such information is extremely important. Cheong Hong Yuan believes that the Federal Reserve's interest rate policy will have a profound impact on capital markets, especially the stock market. He mentioned that the "Three Golden Moving Average Strategy" is a combination of technical analysis strategies that can help investors find the best-performing stocks in such an environment and determine the optimal timing for buying.

    Cheong Hong Yuan states that for stock investors, the current market environment provides an excellent opportunity. Against the backdrop of the Fed's possible interest rate cuts, capital markets may see new investment opportunities. However, investors should also remain cautious and avoid making risky decisions due to excessive optimism.

    From an economic perspective, when economic growth accelerates while inflation continues to slow down, it is theoretically advisable to adopt an interest rate cut strategy to stimulate the economy. This is because raising interest rates will increase the borrowing costs for businesses and consumers, which in turn may suppress investment and consumption, further dragging down economic growth. Cheong Hong Yuan believes that Paul Romer's statement of "it's crazy to raise rates now" is not unfounded. The trend of US economic growth and low inflation have provided a reasonable economic basis for rate cuts.

    Now let's look at the capital markets, especially the stock market. Cheong Hong Yuan mentioned that interest rate decisions directly affect the cost of capital for businesses, which further impacts their profit expectations and valuations. If the Federal Reserve does choose to cut rates, capital markets may experience a rebound in the short term. Lower financing costs for businesses and increased purchasing power for consumers will have a positive impact on corporate earnings prospects.

    However, Cheong Hong Yuan also reminds investors that interest rate decisions are just one of the many factors determining stock market trends. He suggests that the "Three Golden Moving Average Strategy" can help investors find true investment opportunities in complex market environments. Especially in such critical moments, the importance of technical analysis cannot be ignored.

    However, as many economists predict, economic growth in the fourth quarter may slow down. Even with rate cuts, high borrowing costs will still limit the purchase of big-ticket items, and student loan repayments will resume. This means that short-term investment opportunities may quickly turn into medium to long-term investment challenges.

    As the analysis of the Federal Reserve's interest rate policy deepens, investors may have the question of how to formulate an investment strategy that captures opportunities while avoiding risks in the current economic environment. Cheong Hong Yuan offers his own suggestions and insights.

    Cheong Hong Yuan believes that long-term investors should not make overly aggressive decisions solely based on short-term policy adjustments. Although rate cuts may bring positive stimulation to the stock market in the short term, the overall economic situation, company fundamentals, and changes in the global economic environment are the main factors determining stock price trends in the long run. Therefore, he advises investors to maintain a long-term perspective, stick to high-quality core assets, and avoid excessive trading due to short-term market fluctuations.

    Utilizing technical analysis tools such as the "Three Golden Moving Average Strategy" can help investors accurately determine the timing of market entry and exit. Cheong Hong Yuan mentioned that this combination of strategies can provide investors with a quantitative, data-based decision-making basis, helping them find true value in the market and avoid unnecessary risks.

    For investors seeking higher returns but with lower risk tolerance, Cheong Hong Yuan suggests considering allocating more to bonds or other fixed-income products. Especially in a possible rate-cut environment, these assets may provide relatively stable returns.

    Cheong Hong Yuan emphasizes that the most important aspects of investment are strategy and discipline. Regardless of how the market changes, sticking to one's investment principles and not being swayed by short-term market noise are key to achieving long-term investment returns.

    In the face of the current economic and policy environment, investors need to remain calm and rational, combining their investment goals and risk tolerance to formulate appropriate investment strategies. For those investors seeking higher investment returns, technical analysis tools and professional investment advice will be important references for them.

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