Industry News
The Federal Reserve's unexpected interest rate cut benefits the chemical industry
The Fed's interest rate cuts themselves are a trend. According to the released economic data, the Federal Reserve has made progress in combating inflation. The US Consumer Price Index (CPI) rose 2.5% year-on-year in August, reaching a new low since February 2021 and approaching the Federal Reserve's inflation target of 2%. However, due to the high federal funds rate, the outlook for the US economy is not optimistic. Manufacturing activity has been in a contraction range for several consecutive months, and the labor market has also remained weak.
Since 2023, the US chemical industry has been reflecting that the Federal Reserve's benchmark interest rate is too high. They believe that the rise in benchmark interest rates has made large goods such as homes, cars, appliances, and furniture more expensive in the United States. For many key chemical end markets, rising interest rates will suppress demand. For example, in the construction industry, the reluctance of consumers to buy and sell real estate has had an impact on the existing housing market in the United States, causing its sales to drop to the lowest level in 30 years, thereby affecting the demand for a series of related products such as building coatings, furniture, mattresses, and appliances, and profoundly affecting the American chemical industry. Now, the American chemical industry has finally received positive news from the Federal Reserve's interest rate cut.
Market insiders also analyze that the Fed's interest rate cuts will bring benefits to other markets. Firstly, interest rate cuts can help alleviate the pressure of capital outflows from other countries. Since 2022, due to the Federal Reserve's consecutive aggressive interest rate hikes, many countries have experienced capital outflows, leading to currency depreciation and financial market turbulence. With the Federal Reserve cutting interest rates, these countries' chemical industries will have a more favorable financing environment. Secondly, interest rate cuts are beneficial for international capital to flow back to emerging markets. In theory, the Federal Reserve's monetary easing cycle will lead to a decrease in US dollar interest rates, driving international capital towards higher yielding emerging markets, which is also good news for emerging countries' chemical industries in need of funds.
As for whether the Federal Reserve will further cut interest rates, most Fed officials believe that the federal funds rate at the end of this year will be lowered to a level of 4.25% to 4.50%. But there is still disagreement on whether to cut interest rates by a total of 100 basis points or 125 basis points in 2025. The specific trend still needs to be observed and monitored.
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