On December 10th, the Federal Reserve cut interest rates again by 25 basis points. This is the third rate cut this year, and counting backwards from September of last year, it is the sixth rate cut overall.

So what is the purpose of this round of rate cuts? What does it mean for our money and the markets?

Let's look at the US first. The most direct effect of rate cuts is that borrowing becomes cheaper. Corporate financing costs decrease, individual loan pressures lessen, and theoretically, people will be more willing to spend and invest. However, deposit interest rates also fall, which makes people who rely on bank interest less satisfied, and many funds are starting to flow into stocks and other markets.

The real estate sector is quite responsive; the 30-year mortgage rate has now dropped to around 6.15%, lowering the threshold for home purchases. Those who were previously hesitant might now decide to buy. On the consumption side, lower borrowing costs mean that especially those with limited liquidity may have a stronger desire to buy things.

The investment markets are becoming more lively. If the rate cuts are purely preventive, US stocks usually rise, and indices like the S&P 500 tend to perform well historically. But if the economy actually enters a recession, rate cuts won't save the market. Bond yields tend to decline, and safe-haven assets like gold may become more popular. In the short term, the US dollar exchange rate might weaken slightly, but the long-term trend will depend on economic fundamentals.

The employment market is a key focus of this rate cut. Recent employment data has been underwhelming, and policymakers hope that rate cuts will stabilize job creation. However, this requires time to verify its effectiveness. A contradiction is that rate cuts may lead to rising inflation, bringing back price pressures, which could increase daily expenses for ordinary people.

Turning to China, the Federal Reserve’s rate cuts have given our central bank more room to maneuver. Previously, concerns about inverted interest rate spreads causing capital outflows have eased, allowing the central bank to more confidently use tools like reserve requirement ratio cuts or additional rate cuts to stimulate the domestic credit market. Loan interest rates for businesses are expected to decrease, which is a positive signal for manufacturing and small to medium-sized enterprises.

This cycle of rate cuts continues to influence global asset allocation, and the tug-of-war between risk assets and safe-haven assets has just begun.