The US restarts interest rate cuts: The great melting pot continues. How should we plan?

On September 17, 2025, the Federal Reserve (Fed) announced a 25 basis point reduction in the target range for the federal funds rate to 4.00%-4.25%. This marks the first restart of the rate-cutting cycle since December 2024, signaling a turning point in monetary policy from tightening to easing. This decision was not unexpected—prior to the meeting, the market had priced in an 86% probability of a rate cut, but the signals behind it sparked widespread discussion: early signs of economic slowdown are appearing, the job market is weak, the unemployment rate has risen to 4.3%, and while inflation is stabilizing, it remains above the long-term target of 2%. Fed Chair Jerome Powell emphasized at the press conference that this rate cut is a “Risk Management” measure aimed at balancing employment and price stability, rather than directly addressing a recession.

According to the Fed's latest Summary of Economic Projections (SEP), committee members expect the median federal funds interest rate to drop to 3.50%-3.75% by the end of 2025, indicating that there will be two more 25 basis point rate cuts this year, to be implemented at the October and December meetings. By 2026, the interest rate may further decline to 3.25%-3.50%. This “dot plot” shows that out of 19 members, 9 support the range of 3.50%-3.75% by the end of the year, with only one member (presumably new board member Stephen Milan) advocating for a more aggressive 2.75%-3.00%. These projections reflect the Fed's optimism about economic growth—2025 GDP growth median is revised up to 1.6%, higher than June's 1.4%—but also imply uncertainty: political pressure, geopolitical risks, and potential inflation rebound could disrupt the pace.

If you are an investor, this round of interest rate cuts is undoubtedly a critical turning point. Over the past 25 years, the Fed's interest rate path has fluctuated like a roller coaster: after the Global Financial Crisis (GFC), rates fell to near zero, stimulating the recovery of the financial system; during the pandemic, they once again hit rock bottom, driving asset prices soaring, with mortgage rates falling below 3%. The loose monetary policy triggered skyrocketing inflation, prompting the Fed to shift to Quantitative Tightening (QT) and aggressive rate hikes, raising rates to a peak of 5.25%-5.50%. By mid-2024, the policy shifted to pausing rate hikes, and now interest rate cuts have resumed, leading to a more accommodative monetary environment. This is not just an adjustment of interest rates, but also a signal: the Fed prioritizes preventing employment risks over uncontrollable inflation.

Historical Mirror: Stock Market Performance under Interest Rate Cuts

To understand the current situation, it may be helpful to review history. Interest rate cuts are often a “catalyst” for the stock market, especially when the market is close to historical highs. According to data from JPMorgan's trading desk, since 1980, when the Fed has initiated a rate-cutting cycle with the S&P 500 index within 1% of its historical peak, the index has averaged an increase of nearly 15% within a year. As of September 17, the S&P 500 was at 6619 points, just 0.1% away from its intraday record, perfectly fitting this pattern. JPMorgan analysts point out that this “rate cut in a non-recession environment” will drive the index up about 17% over the next 12 months, consistent with actual performance since 2024.

More detailed statistics reinforce this view. LPL Financial analyzed the performance of the S&P 500 after the first interest rate cut over the past 50 years: the average return within a year is 4.9%, with a nearly 70% chance of positive returns. However, the short-term response is mild—one month after the rate cut, the market averages only a 0.1% increase, with a median of 0.4%, essentially a consolidation following a “sell the news” scenario. According to Seeking Alpha, since 1980, the median return of the S&P 500 after similar high-level rate cuts is -0.31% (over 30 trading days), with an average of -1.20%, but this is often short-term noise, and in the long run, bull markets tend to continue.

Specific to the time node:

• by mid-October

There is a 50% probability of an increase, with an average return of 0.1%. This means that in the short term, the market may be range-bound or slightly adjust, which is suitable for conservative investors to observe.

• By mid-December

A 77.3% probability is higher than the level on September 17, with an average increase of 3.4% and a median of 5.5%. Historical data shows that the eve of Christmas is often the peak of the “year-end effect,” with fund inflows driving the rebound.

• By mid-March 2026

72.7% probability of positive returns, continuing the easing dividend.

• One year later (September 2026)

100% historical win rate, averaging 13.9%, median 9.8%. Extreme years can reach a rise of 20%-30%, such as during the tech bull market of the 1990s.

These data are not ironclad. Visual Capitalist points out that the returns during past interest rate cut cycles have varied widely, ranging from +36.5% to -36%, depending on the economic backdrop. The current environment resembles the “melt-up” of 1995-1999: low inflation, strong earnings, and tech-driven (like AI). Data from BlackRock's multi-asset team shows that large-cap stocks (S&P 500) typically outperform small caps (Russell 2000) during interest rate cut cycles, as the latter are more sensitive to interest rates, but slowing earnings may offset dividends.

If you are a beginner, don't rush to chase the highs. Historical warnings: the market reacts mildly in the early stages of rate cuts, and if you miss the entry point, you will face “buying high and selling low” by the end of the year. As an advanced strategy, consider writing covered calls on long positions: if the market remains sideways, you can still profit from the options premium. Data shows that this strategy can achieve an annualized return of 5%-8% during low volatility periods.

The Fed's “Firewall”: A 20% Correction and a V-Shaped Recovery?

The market always has its skeptics: the stock market is overvalued, similar to the internet bubble of 2000; a recession is imminent, with the S&P 500 Shiller CAPE ratio reaching its third highest in history (only behind 1999-2000). David Rosenberg warns that this signals a “massive price bubble,” with 10-year returns likely to be negative. However, history refutes the “this time is different” argument. In 2020, during the pandemic, the unemployment rate soared to 14.8%, the economy fell into recession, yet the S&P 500 rose against the trend by 16% (18% including dividends). Why? The Fed printed $4 trillion, restarted QE, and the stock market decoupled from the economy.

My view: A decline of over 20% in the stock market is unlikely to last. The Fed has deemed the stock market as “too big to fail.” If the S&P 500 drops by 25%, it will trigger systemic risks—pension fund sell-offs, credit tightening, and a surge in bank bad debts. During Powell's era, the Fed has committed to “asymmetric intervention”: gradual rate hikes and rapid rate cuts. By 2025, the M2 money supply had reached $22.12 trillion (July data, a year-on-year increase of 4.5%, a three-year high), setting a record high. If the market crashes, the Fed will restart QE, printing trillions to create a V-shaped rebound. The lesson of 2020: After the March low, the index rebounded by 50% in three months.

Of course, risks remain. Leverage investors need to be cautious: a 20%-25% pullback can instantly wipe out margin accounts. Recommendation: control positions at 60%-70% to avoid deep leverage. Statistics show that the survival rate of excessive leverage in bear markets is less than 30%. Remember, the stock market is not the economy—earnings growth is key. The S&P 500 EPS is expected to be $325 in 2025 (LPL forecast). If AI investment returns materialize, valuation expansion can reach 23.5 times, pushing the index to 7640 points (a 30% increase).

Weak Dollar: Tailwinds for Gold, Silver, and Bitcoin

The other side of interest rate cuts is a weaker dollar. After September 17, the dollar index (DXY) briefly fell by 0.3%, closing at 97.53 on September 19, down 3.18% for the year. According to Trading Economics, this is the worst performance in the first half of the year in 50 years, but the 40-year chart shows significant downward space: DXY could drop below 95. Low interest rates reduce the attractiveness of the dollar, leading capital to flow into emerging markets and commodities.

Comparing with other fiat currencies is meaningless—just as the video states, measuring the depreciation of the dollar against gold is more accurate. The current spot price of gold is $3688.85 per ounce (as of September 19), having risen over 30% this year. Interest rate cuts are a “tailwind” for gold: opportunity costs decrease and risk aversion demand increases. Deutsche Bank has raised its average price forecast for 2026 to $4000, while Goldman Sachs predicts $3800 by the end of the year. LongForecast expects $3745 by the end of September and a peak of $4264 in October. The reason? A surge in M2, with more depreciated dollars chasing a limited supply of gold. Similarly, silver prices are rising, expected to reach $45 per ounce by the end of the year.

Bitcoin also benefits: as “digital gold”, BTC averages a 25% increase during periods of dollar weakness. At the current $70,000 level, if DXY breaks below 96, BTC could surge to $80,000. The video emphasizes: comparing fiat currencies is rather foolish, gold is the true anchor.

Inflation Concerns and Investment Strategies: Don't Let Cash Devalue

The M2 money supply has reached 22 trillion, a record high, indicating inflationary pressures. The Fed has controlled inflation at 2.5%-2.7%, but Trump's tariffs could push up the CPI. Video core: Don’t sit idly by as cash is eroded by inflation. Global GDP is expected to grow by 3% in 2025 (IMF forecast), and the rise of the US stock market continues: Yardeni Research states that the S&P 500 could reach 10,000 by 2030 (a 60% increase). The strategy is simple: buy on dips and hold quality assets.

• Cash Buffer

Set aside 6-12 months of living expenses, and use money market funds (annualized 4%-5%) for short-term large expenses.

• Diversification

60% stocks (technology + consumer), 20% bonds, 10% gold/bitcoin, 10% cash. BlackRock recommends increasing allocation to alternative assets, with low correlation to buffer volatility.

• Risk Management

If corrected by 20%, it is regarded as a buying opportunity. History shows that the melt-up is not linear—there were three 10% pullbacks in the 1990s, but the bull market continued.

This is not a prediction, but a data-driven perspective. The Fed's “money printer” has restarted, and the melt-up game continues. If you believe “this time is different,” you will be in the minority. Take action, don't get left behind by FOMO. But be cautious: the market is rigged, yet not without risk. In 2025, opportunities and traps coexist, and the choice is in your hands.