Generally speaking, the US government usually does not foresee major fluctuations in the economy and always claims to achieve a "soft landing". The Federal Reserve has repeatedly emphasized the need to lower prices while ensuring that the economy continues to grow steadily and maintain a strong job market.
History shows that the Fed has never succeeded in achieving this goal. Every time a recession was about to happen, the Fed denied it was going to happen until it was already a reality. The Fed's focus is not only on employment and economic conditions, but also on keeping interest rates low, so that the federal government can continue to borrow heavily at low yields. As federal debt increases, the central bank faces increasing pressure to maintain or even lower interest rates.
However, the Fed is also worried about rising prices because it can cause political instability. When rising prices cause public dissatisfaction, the Fed will raise interest rates, but the Treasury Department wants it to maintain low interest rates to ease fiscal pressure, thus forming a game.
Since the recession in 2001, the talk of a "soft landing" has been common in the US media. For example, in July 2001, Bloomberg writers began discussing the possibility of a "soft landing". In mid-2008, even though the recession had already begun for several months, Federal Reserve Chairman Ben Bernanke still predicted a soft landing. In the end, the economy did not achieve a soft landing, but fell into recession.
Over the past 30 years, the Fed’s rate cuts have often not prevented a recession, but rather preceded peak unemployment. For example, a sharp rate cut in 1990 was quickly followed by a recession in 1991. After the rate cuts began in late 2000, unemployment rose rapidly. After another rate cut in 2007, unemployment also rose.
In the early stages of interest rate cuts, economic recessions occurred repeatedly.
In summary, the Fed's modus operandi is as follows: Concerned about runaway inflation, the Fed raises its target interest rate and "tightens" monetary policy. In the process, the Fed usually insists that there will be no recession and that a "soft landing" is happening. But the reality is that the economy is often significantly weaker. The Fed hides the truth or misjudges the economic problems. In the end, the Fed does what it has done for decades: it loosens monetary policy in the hope of creating a new economic bubble to trigger a new boom.
Keeping interest rates low is more important now than ever before. Over the past four years, the federal debt has surged from $23 trillion to $34 trillion, an increase of $11 trillion. In an environment of near-zero interest rates, this situation is manageable. However, when debt is combined with rising interest rates, interest payments quickly increase and take up an increasing share of the federal budget. If the government does not manage this properly, it could face a sovereign debt crisis.
In fact, interest costs have more than doubled since 2021. However, we have not yet seen the full impact of increased debt and rising interest rates. Because federal debt does not mature all at once, interest costs have been contained over the past few years. However, with nearly $9 trillion of federal debt maturing in 2024, and about $2 trillion of new debt coming due in 2024, the federal government will need someone to buy more than $10 trillion of federal debt. To prevent interest rates from rising further, the Federal Reserve may need to step in and buy up large amounts of debt to hold down yields.
In other words, whether or not price inflation is at its 2% target, the Fed may need to implement new rate cuts and claim that price increases are “on target.”
Will the market then face a crisis like before? We will see as we go along.