US Slows Down Interest Rate Cuts

After the Federal Reserve initiated interest rate cuts in September, the direction of monetary policy remains unclear, and it has repeatedly sent signals that it is "not in a hurry to cut rates rapidl...

After the Federal Reserve initiated interest rate cuts in September, the direction of monetary policy remains unclear, and it has repeatedly sent signals that it is "not in a hurry to cut rates rapidly," causing fluctuations in the global market. However, the Federal Reserve's approach of "data-driven monetary policy choices" has not convinced market institutions, and the cost of slowing the pace of rate cuts is not small.

On September 30, Federal Reserve Chairman Powell stated that there is no preset path for the direction of monetary policy and will continue to let data guide future policy actions, seeking a balance between curbing inflation and supporting the labor market. He indicated that the 50 basis point rate cut in September "does not mean there will be more significant rate cuts this year," and the Federal Reserve "will not be in a hurry to cut rates rapidly."

Local time on September 18, Federal Reserve Chairman Powell attended a press conference in Washington.

These remarks poured cold water on the expectations that "the Federal Reserve will cut rates by another 50 basis points," causing a strong market reaction. Affected by this, the yield on two-year U.S. Treasury bonds rose sharply that day, the U.S. dollar rose more than 1% against the Japanese yen in a short period, U.S. stocks fell across the board at one point, and traders quickly reduced their bets on the overall rate cut by the Federal Reserve. Some analyses point out that due to the large revision of U.S. economic data, deepening market concerns about economic recession, and rising interest expense pressures, the Federal Reserve does not have much room to adjust the pace of rate cuts calmly.

The Federal Reserve has repeatedly stated that it will decide the speed of rate cuts based on economic data. However, the credibility of U.S. data is facing challenges. In mid-August this year, the U.S. Department of Labor announced that it would revise down the number of new jobs added in the year ending in March by 818,000, almost cutting the previously announced new jobs by one-third. Such a huge adjustment in key economic data is rare both in U.S. history and globally. The excessive revision of data has led the market and the economics community to doubt that there are significant flaws in the Federal Reserve's data-driven decision-making mechanism, saying that "it may weaken people's confidence in U.S. official statistical data." Therefore, the data foundation on which the Federal Reserve relies to adjust the pace of rate cuts is not solid.

The U.S. economy, which has been at high interest rates for a long time, is increasingly at risk of recession. Although the Federal Reserve repeatedly emphasizes that the "U.S. economy is generally strong," in the view of market institutions and economists, a recession is not far away. Goldman Sachs and other U.S. investment banks have recently reminded their clients to prepare for a key shift in the economy, "some changes in the macroeconomic landscape indicate that the probability of a recession has significantly increased." The动向 of renowned investor Buffett's accelerated reduction in stocks has also attracted close attention. Over the past two years, he has sold several core stocks he has held for many years, causing the company's cash reserves to surge by 161%, reaching $276.9 billion. Continuing to maintain high interest rates will only further amplify risks and bring more challenges to policy adjustments.

Greater pressure comes from U.S. fiscal policy. On October 8, the U.S. Congressional Budget Office released a report showing that in the fiscal year of 2024, the U.S. federal government's fiscal revenue was $4.918 trillion, with a total expenditure of $6.752 trillion, and the budget deficit exceeded $1.8 trillion, an increase of $139 billion from the previous fiscal year. Among them, the total net interest expenditure on public debt was $950 billion, an increase of $240 billion from the previous fiscal year, an increase of 34%, accounting for 14% of the annual budget expenditure, exceeding U.S. defense spending. Currently, the total U.S. federal debt is still rising. If the Federal Reserve insists on slowing down the pace of rate cuts, interest payments will continue to surge, and the U.S. fiscal situation will inevitably deteriorate further.

Some analyses point out that the Federal Reserve should not be unaware of the above situation, but it has been vacillating on the issue of rate cuts recently, which may be due to the upcoming election's desire for stability, or it may be to leave room for subsequent policy adjustments. However, "not examining the situation, both leniency and strictness are mistakes." Looking at the current state of the U.S. economy, once indecisiveness leads to a missed opportunity for policy adjustment, it is afraid that it will only bring more trouble.