Core Viewpoint - The global financial system is undergoing profound changes, marked by the Federal Reserve's recent interest rate cuts, which signal a significant shift in monetary policy and its implications for global economic coordination and financial governance [1][13]. Group 1: Federal Reserve's Rate Cuts - The Federal Reserve announced a reduction in the federal funds rate target range from 4.25%-4.50% to 4.00%-4.25% on September 18, 2025, marking its first rate cut since 2025 [1][13]. - On October 29, 2025, the Fed further lowered the target range to 3.75%-4.00%, totaling a 50 basis point reduction for the year, indicating a critical turning point in its monetary policy cycle [1][13]. - This shift is driven by both domestic economic conditions and the need to address global economic slowdown and inflation dynamics [1][13]. Group 2: Economic Indicators and Labor Market - The U.S. labor market is showing signs of deterioration, with the unemployment rate rising to 4.3% in August 2025, the highest in nearly four years, indicating a complex interplay of cyclical and structural economic challenges [2][14]. - The number of non-farm payroll jobs added has been significantly revised down, with a reduction of 911,000 jobs from April 2024 to March 2025, highlighting deeper adjustments in the labor market than previously reported [2][14]. - The Fed's acknowledgment of increased risks in the labor market reflects a broader concern about potential economic recession [2][14]. Group 3: Inflation Dynamics - Despite inflation levels remaining above the Fed's 2% target, the year-on-year increase has shown a declining trend for five consecutive months, indicating a complex inflationary environment [3][15]. - The current economic backdrop resembles a "stagflation" scenario, where economic growth slows while inflation remains relatively high, complicating monetary policy decisions [3][15]. - The Fed's updated forecasts suggest a gradual return to the 2% inflation target by 2028, providing a theoretical basis for the recent rate cuts [3][15]. Group 4: Global Economic Impact - The Fed's monetary policy adjustments are expected to have significant international repercussions, influencing capital flows and financing conditions in emerging markets and developing economies [4][22]. - The interconnectedness of the global financial system necessitates that U.S. monetary policy considers its international effects, particularly in light of slowing growth among major trading partners [5][18]. - The Fed's actions may catalyze a shift towards a more diversified international monetary system, as changes in dollar liquidity conditions affect financing costs in emerging markets [4][22]. Group 5: Market Reactions and Asset Pricing - The initial market reactions to the Fed's rate cuts have been volatile, with significant fluctuations in stock indices and bond yields, reflecting investor uncertainty about the economic outlook [7][23]. - Historical patterns suggest that preventive rate cuts can boost stock market performance, yet current economic fundamentals may limit the effectiveness of such measures [7][23]. - The pricing mechanisms for commodities and other assets are undergoing adjustments, with gold prices surging in response to the anticipated monetary policy changes [7][24]. Group 6: Capital Flow and Investment Strategies - The Fed's rate cuts are likely to alter global capital flow patterns, with a potential shift of investments from dollar-denominated assets to emerging markets seeking higher returns [6][20]. - Recent data indicates a reversal in foreign investment trends in China, with significant net inflows into domestic stocks and funds, reflecting increased global capital interest [6][25]. - Investment strategies will need to adapt to the changing risk-return profiles of various asset classes, necessitating a reevaluation of traditional asset allocation models [6][25].

Core Viewpoint - The dominance of the US dollar as the global reserve currency continues to pose challenges for other economies, despite the emergence of alternative currencies like the euro and the renminbi [2][3][4]. Group 1: Historical Context - The end of the Bretton Woods system in 1971 marked a significant shift, with the US unilaterally decoupling the dollar from gold due to persistent deficits and inflation [2]. - The dollar has maintained its status as the first true global reserve currency, unlike previous dominant currencies which were limited to their regions [5][6]. Group 2: Current Dollar Dominance - The US GDP accounts for approximately 25% of the global economy, yet the dollar represents over 40% of international trade and 60% of foreign exchange reserves [6][7]. - The deep liquidity of the dollar market facilitates its use as a vehicle currency, making it the preferred medium for international transactions [6][7]. Group 3: Challenges for Other Currencies - The euro, despite being the second-largest currency, struggles to achieve global status and is primarily used within Europe [12][20]. - Emerging markets have adopted managed floating exchange rate systems to mitigate volatility, learning from past financial crises [13][14]. Group 4: US Fiscal Concerns - The US faces significant fiscal challenges, with federal debt nearing 100% of GDP and projected to rise to 166% in 30 years under current policies [14][15]. - Political polarization hampers effective fiscal management, leading to a consensus of "deficits don't matter" among policymakers [15][19]. Group 5: Future of the Dollar - Concerns about the sustainability of the dollar's dominance are growing, with potential risks including higher interest rates and inflation [19][20]. - The renminbi's internationalization is ongoing, but significant barriers remain, including the need for capital account liberalization and legal market development [21].