$BNB Why does the Fed insist on not cutting interest rates?
$BTC Is the purpose to bring down the world?
From the perspective of employment and economy, the Fed's interest rate cut has failed, which shows that the Fed is not considering employment or recession. The employment data every month is made up, and the whole world knows it except for a small number of people, while the recession is mainly based on their official announcement, with a lag period of 11 to 13 months.
Then we have to find the answer from a deeper level. What is the purpose of the Fed to keep interest rates high? What are the factors that can really determine the Fed's interest rate cut?
Since 2008, the United States has started a debt-driven economic growth model. Periodic economic crises are inevitable, especially since 2020, the super-large-scale QE has been printing money without a bottom line, releasing a huge amount of liquidity that exceeds market needs, which is the root cause of inflation. Can the Fed really suppress inflation by raising interest rates and shrinking its balance sheet? Obviously not. On the surface, this round of interest rate hikes has suppressed US inflation from nearly double digits to below 3%, which seems to be close to success.
But the interest rate hike did not eliminate liquidity. On the contrary, high interest rates generated a large amount of capital gains. If these additional gains are released to the market, you can imagine what the consequences will be. If the excess money is not evaporated, inflation cannot go down.
What does the inversion of long-term and short-term treasury bond yields caused by the interest rate hike, especially short-term bonds, mean for a risk-free return of more than 5%? Just put the money in the bank or buy a 3-month short-term US bond to get a risk-free 5% return? What other investment activities can achieve this? Not only Americans, but also people who hold US dollars all over the world, as long as they are not fools, know to buy US bonds. The interest rate hike suppresses the global supply side and drives capital to the equity market, not production activities.
But the United States. The consumer side driven by risk-free high returns is the benefit, and all those who hold US dollars enjoy a 5% risk-free return. In this case, the downward trend in inflation is temporary. Once the Fed starts to cut interest rates, inflation will come back and will be more fierce than in 2020. Combined with the inventory cycle in the United States, China and the world, you can think about what this means for commodities?
