SENDKING Viewpoint | SendKing Offers a Recession-Proof Remedy amid Global Interest Rate Cuts
Recently, the U.S. again flooded the market with liquidity. The Federal Reserve lowered the interest rates by 25 basis points, the third rate cut after July 2019.
Rate Cut, a No-gun Financial War
The Federal Reserve has consecutively lowered the interest rates by 75 basis points in the past 3 months. Is it a consequence of the China-U.S. trade war or a disguise for other schemes?
The Federal Reserve’s monetary policy would always affect the monetary trend of the whole world and even bring huge depreciation pressure for some developing countries. It was often the case that as long as the Fed cut rates, the global would follow suit. The same went for this time. Upon the news of the Fed’s rate cut, another 5 countries including Brazil and Kuwait lowered their interest rates, too.
Every move the Federal Reserve took influenced the nerve of the global central banks. Statistics showed that as at September 19, 2019, nearly 30 countries and regions had cut their interest rates. Many of them were emerging economies, but such developed ones as Canada, Australia, and New Zealand also followed suit. However, the statistics also indicated that U.S. had mild economic growth, robust labor market performance, rising family expenditures, and low unemployment. That meant a rate cut was not a must.
According to the Federal Reserve, the aim of this preventive rate cut was to cope with the potential risk for economic downturn. And this may not be the last rate cut within this year. The Standard Chartered Bank estimated that the Federal Reserve would cut rates again in December. Such frequent rate cuts have been rarely seen in the past decades in the U.S.
Depreciation of U.S. Dollars and Globe Inflation
The influence of the Fed’s rate cut went most directly on the interest and exchange rates and then spread to various financial assets. Theoretically speaking, the rate cut has reduced the risk-free return; however, it has pushed up the interest rate premium and inflation to some degree. And in the long run, an easing monetary policy also stimulates the economic growth; therefore, the rate cut is good for safe haven assets and risk assets.
Nowadays, as the economy globalization, any economic event can cause the Butterfly Effect and affect other economies. Especially, the U.S has established the world monetary system with the dollar as the core. In this system, the U.S. dollar influences the development of the world monetary economy. Although China is already very strong and its inflation is not affected by the Fed’s rate cuts, it is still theoretically hard for China to stay out of the influence.
Accelerating Investment with Reasonable Asset Allocation
In the third quarter of this year, China’s GDP growth decreased to 6%, no progress was made in infrastructure construction, growth in fixed asset investment dropped, the PPI descended into negative growth, the total retail sales of consumer goods continued dropping while the leverage ratio of residents was high, investment confidence in the manufacturing sector continuously fell, and export growth decreased.
Particularly, in the recent months, the soaring pork prices have pushed CPI to a 6-year new high, and quasi-stagflation has become increasingly prominent. We can hardly say such phenomena have nothing to do with the Fed’s consecutive rate cuts. Along with Fed’s rate cut this time, the domestic consumption level may maintain high for a short time.
Then, will we common people be affected? How to keep our money and protect our wealth?
As the interest rates are lowered, the only suggestion is to do financial planning as early as possible. The lower the interest rates go, the more important it is to gain reassurance. A safe and reliable financial institution is where you really save money; a common bank is just a place where you put money. Good financial planning can invisibly amplify your assets. Adding value with stable interest rates and compound interests which are fixed by unchanging contracts is really a way more reliable than buying gold.
So, in the time of low interest rates, to maintain our wealth, we need to act faster to adjust asset allocation and make financial planning. Making money is easy, while keeping money needs skills.
Interest rates directly guide capital flows. Rate cuts make savings flow toward investment and consumption, which is good for finance and capital. Because of the lowered deposit rates, people tend to invest their money from bank deposits into the financial products with higher returns. So, financial investment becomes an alternative to bank deposits in the time of low interest rates.
On the other hand, when interest rates are lower, some people believe that saving money is not as effective as consumption. In their eyes, considering inflation and other factors, saving at a low interest rate means potential “depreciation” of deposits; therefore, they tend to consume money by entertaining, purchasing daily commodities and equipment, or by other means. Therefore, lower interest rate can stimulate social consumption, and improve economic vitality and profits of related listed companies.
Fed led the global central banks to cut rates collectively, which brought investment opportunities for the emerging markets. Among numerous investment channels, SendKing is devoted to become the first choice of investors. Faced with rate cuts and currency depreciation, investors can choose high-quality enterprises with clear orientation and rich management experiences to grasp the new round of investment opportunities and realize wealth appreciation. SendKing integrates excellent domestic capital strength and expands overseas financial business to mature its financial capacities and improve its financial system. SendKing is bound to bring a new dawn for the surging capital environment and pave a sound road for the clients to realize wealth appreciation.
The Curriculum Vitae of Director of the International Finance Department
Florian Chen, born in Zhuzhou, Hunan Province in February 1982, graduated from Blaise Pascal University in France with a master's degree in management, currently working at Hunan Send King Financial Service Co., Ltd. (“SEND KING” for short) as the director of International Finance Department.