The Federal Reserve's decision to remain on hold at its November interest rate meeting seems to contradict the narrative of a strong U.S. economy. It is self-evident whether this includes the U.S. consortium's overseas geopolitical concerns. Tonight's non-farm payrolls were also far lower than expected, and seemed to be extremely controlled in line with the market's narrative that there is a probability of starting an interest rate cut cycle in the middle of next year. The Federal Reserve's trading method, which seems to be looking at the sky, is actually just a multiple-choice question between plan A and plan B.
Taking history as a guide, the author does not believe that Powell's neutral stance at the meeting was dovish. In the United States in the 1970s, it was the volatile interest rates that led to rapid recovery, rapid recession, and continued stagflation. The current Federal Reserve is well aware of the reasons why the federal funds rate was close to 14% at the end of 1979 and as high as 20% in 1980. The author believes that the lessons of history will not allow the same mistake to happen again. Even if the Fed no longer adheres to the "higher for longer" narrative, it will inevitably launch a "longer" narrative.
The reasons are as follows:
1. The Fed can no longer underestimate inflation resilience as it did during the Volcker era.
2. The tail risk of raising interest rates and shrinking the balance sheet is not excessive tightening, but insufficient tightening to consume and erode MMT’s excessive currency issuance scale.
3. The Fed's bond losses are not actual profits and losses. If you tolerate it a little longer, the situation will be calm. There is no need to be short-sighted.
