Core Points - The Federal Reserve unexpectedly announced a 25 basis point interest rate cut, lowering the target range for the federal funds rate to 3.75% to 4.00% [1] - Fed Chairman Jerome Powell also announced the early end of a quantitative tightening policy that had reduced over $2 trillion in assets since June 2022, indicating a shift from a "money tightening" phase to a "money easing" phase [3][19] - The U.S. federal debt has surpassed $38 trillion, equating to 128% of GDP, highlighting the unsustainable debt levels [4][21] Economic Impact - The U.S. government has been accumulating debt at an alarming rate, with an additional $1 trillion added in just two months, averaging $160 billion per day [6] - The partial government shutdown since October 1 has led to significant disruptions, affecting federal employees and essential services, including national security [9][11] - The Congressional Budget Office estimates that the shutdown has caused direct economic losses between $7 billion and $14 billion [11] Credit Rating and Market Reaction - Moody's downgraded the U.S. credit rating from Aaa to Aa1 in May, and European rating agencies followed suit, lowering the U.S. sovereign credit rating from "AA" to "AA-" [13] - This decline in creditworthiness has led to a loss of confidence in U.S. Treasury bonds as the "safest asset," impacting global capital flows [15][27] Federal Reserve's Dilemma - Powell's decision to cut rates and end the balance sheet reduction is seen as a response to tightening market liquidity, with emergency financing tool usage spiking to pandemic levels [17][19] - The U.S. government is struggling to meet interest payments, with projected interest expenditures reaching $1.4 trillion, accounting for a quarter of total federal revenue [21][23] - The fiscal situation is exacerbated by a tax deferral policy that has reduced revenue by approximately $220 billion [23] Global Capital Shifts - As the U.S. grapples with its debt issues, international capital is increasingly moving away from dollar assets towards more stable markets, with China emerging as a preferred destination [29][33] - In the first half of the year, foreign capital inflows into Chinese stocks and funds reached $10.1 billion, reversing a two-year trend of net outflows [31] - The People's Bank of China has maintained stable interest rates and injected liquidity into the market, creating a more predictable investment environment compared to the U.S. [33][36] Future Financial Landscape - The structural imbalance in U.S. fiscal policy, with mandatory spending exceeding 70% of total expenditures, limits the government's ability to maneuver [34][36] - The global financial landscape is shifting from a "dollar-dominant" model to a more diversified approach, with investors seeking stable and transparent policy environments [38]