What is the underlying logic of the Fed's interest rate hikes and rate cuts?
Why do we, the cryptocurrency players, have to keep following it!! This is a question for many newcomers, so I will explain it briefly here.
Through interest rate cuts and rate hikes, the United States can easily reap the wealth of many countries
Since 1974, the United States has harvested three times in a row around the world, first in Latin American countries, then in Japan, and finally in Southeast Asia.
The harvest relies on the dollar tide Q
The dollar tide, that is, the flow pattern brought about by the dollar's interest rate cuts and rate hikes, is very much like a tide, and it is a man-made tide. Looking back at history, it can be said that almost every global financial crisis has the shadow of the Fed's interest rate hike behind it
So, why can the dollar hegemony only be stable?
The logic and impact of the Fed's interest rate hike:
The logic of the interest rate hike: the economy is overheated, inflation exceeds the target, and the Fed raises interest rates to cool down and slow down economic activities.
Impact:
1. Rising borrowing costs inhibit investment and consumption. ⒉. Stock market fluctuations, investors may turn to the bond market. 3. The dollar appreciates, attracting foreign investors.
4. Pressure on the global economy, especially countries with high dollar debts.
The logic and impact of the Fed's interest rate cut
The logic of interest rate cut:
1. Economic growth slows down, and interest rate cuts stimulate economic activities.
2 Economic crisis or market turmoil, interest rate cuts provide liquidity and stabilize the market. 3. Foresee the risk of economic slowdown and take preventive interest rate cuts.
Impact:
1. Borrowing costs fall, stimulating investment and consumption. ⒉. The stock market is boosted, and investors seek high-return stocks. 3. The depreciation of the US dollar reduces the attractiveness of foreign investment.
4. Increasing global liquidity may lead to currency depreciation and capital outflows in other countries.
Supplement: The Fed's policy decisions are complex and changeable, and are affected by many factors such as economic indicators, global economic conditions and policy expectations, market sentiment, and political events. During the economic expansion period, interest rates may be gradually raised to prevent overheating and bubbles; after a long period of low interest rates, interest rates may also be raised to normalize monetary policy.
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