Core Viewpoint - The Federal Reserve has restarted interest rate cuts after nine months, lowering the federal funds rate target range by 25 basis points to 4.00%-4.25%, marking the first cut since December 2024 and following three previous cuts totaling 100 basis points in 2024 [1][2]. Economic Data - The slowdown in the U.S. labor market has been a significant factor driving the rate cut, with the Bureau of Labor Statistics revising down the annual job growth by 911,000, averaging a decrease of nearly 76,000 jobs per month [2]. - In August 2025, only 22,000 jobs were added, significantly below the expected 75,000, while the unemployment rate rose from 4.2% in July to 4.3% [2]. - Inflation risks remain, with the Personal Consumption Expenditures (PCE) price index rising 2.7% year-over-year as of August 2025, and core PCE increasing by 2.9%, both exceeding the Fed's 2% target [2]. Federal Reserve's Focus - Analysts suggest that the Fed's primary focus has shifted towards employment, as consumer spending, which constitutes 68% of GDP growth, relies heavily on job stability [3]. - The decision to cut rates was influenced by external policy pressures and internal voting disagreements, with a notable dissenting vote advocating for a more aggressive 50 basis point cut [3]. Future Policy Outlook - Economic factors such as expansionary fiscal policy, tariff-induced inflation, and dollar depreciation may keep core PCE inflation relatively high in 2026, but further deterioration in the labor market could prompt another rate cut in October 2025 [4]. Global Financial Market Impact - The Fed's rate cut has immediate effects on global financial markets, influencing the dollar's exchange rate and international capital flows [5]. - The dollar index has shown signs of decline, with analysts predicting that the Fed's actions, combined with concerns over fiscal sustainability, will exert downward pressure on the dollar [5]. Currency and Capital Flows - The weakening dollar has led to a strengthening of the Renminbi against the dollar, with a continuous surplus in bank foreign exchange settlements for three months [6]. - Foreign investment in emerging market stocks and bonds reached nearly $45 billion in August, with approximately $39 billion directed towards China, indicating increased attractiveness of Renminbi assets [6]. China's Monetary Policy Response - In response to the Fed's rate cut, China may focus more on fiscal policy and reforms rather than immediate rate cuts, despite the narrowing interest rate differential providing some room for maneuver [7]. - Experts caution that further rate cuts in China could increase pressure on bank margins and lead to greater volatility in financial markets [7]. Investment Strategy Adjustments - Investors are advised to adjust asset allocation strategies in light of the Fed's rate cut, emphasizing diversification across asset classes, sectors, and regions [9]. - Holding high-quality bonds is recommended to lock in current yields before potential further declines in cash rates, while also serving as a risk management tool amid slowing economic growth [9].