As the US rate cut cycle approaches, this should be good news for the market, as the Federal Reserve's rate cut would come with looser monetary policies and more ample liquidity. However, unexpectedly, as the rate cut nears, both the US and Chinese stock markets have shown declines.
The previously strong Dow Jones index has now fallen for 8 consecutive days, and the Chinese stock market is also seeing a pullback. Is the Federal Reserve preparing to declare war on the global capital markets again? Furthermore, the market expects a total rate cut of 100 basis points this year, with the US possibly only cutting rates by about 50 basis points next year. Is the US about to start playing tricks again?
Is the Federal Reserve about to declare war again?
It was thought that with Trump's victory, the pace of US rate cuts would accelerate. Even if there would not be a large-scale liquidity injection, at the very least, there would be steady rate cuts. However, unexpectedly, countries have started to take action while the Federal Reserve seems to be reversing its stance, even dragging down its own stock market. Is the Federal Reserve about to declare war on the global capital markets again?
Recently, according to relevant media reports, the time for the Federal Reserve to cut rates is approaching, but the global capital markets are not showing excitement; instead, they are filled with worry. According to current market predictions, this rate cut by the Federal Reserve is basically a done deal, with a cut of 25 basis points being inevitable.
Unfortunately, the current market is filled with pessimism regarding the Federal Reserve's rate cuts next year, and the market expects that by the beginning of 2025, the Federal Reserve may pause its easing policy, with the potential reduction in rate cuts down to around 50 basis points.
It can be said that this data is very unsatisfactory globally, as according to the current economic situation, the global economy has not improved. At this moment, there should be a release of significant liquidity to drive economic growth. However, the Federal Reserve is going in the opposite direction, which increases pressure globally.
Because we see that at the same time the Federal Reserve is cutting rates, the Dow Jones index, as the leader of the global capital markets, has experienced 8 consecutive declines. On the other hand, not only is the US stock market facing a significant pullback, but the Chinese stock market is also showing a large decline, indicating that the global outlook on the Federal Reserve's actions is not optimistic.
Because even though the Federal Reserve has cut rates twice, totaling 100 basis points, US interest rates remain above 4%, which means that pressure on everyone has not eased. Moreover, both the European economy and the economies of developing countries have not achieved the expected results.
Especially in recent times, with the rise of the US dollar index, global currencies have once again entered a dangerous zone, continuously hitting historical lows, which means that while everything seems peaceful on the surface, the shadow of crisis has not dissipated.
Moreover, previously, everyone expected the Federal Reserve to start a rate cut cycle, followed closely by other countries. Unexpectedly, as the global central bank, the Federal Reserve wants to pull a reverse move. Just as countries removed their protective barriers to stabilize their economies with rate cuts, the Federal Reserve unexpectedly decided to pause rate cuts, which for other countries is akin to a reverse charge.
After all, after two years of the US draining liquidity, countries have long reached their limits. However, unexpectedly, the Federal Reserve does not want to allow the global economy to catch its breath. It was thought that after experiencing the winter of US interest rate hikes, the world would welcome spring, but unexpectedly, there is still a cold snap of spring.
Moreover, we also see that global capital is voting with its feet. The US 30-year Treasury yield has climbed to 4.6%, while on the other side, the Dow Jones index has fallen for eight consecutive days. This indicates that the Federal Reserve's actions are not without cost, and that cost may be the US capital market.
Is the world's most dangerous situation about to emerge?
For the current global situation, it can be said that there are undercurrents flowing. On one hand, Bitcoin continues to reach new highs, while on the other hand, currencies and capital markets in various countries are unstable, even fluctuating downwards. This indicates that global risks have not disappeared due to the Federal Reserve's rate cuts; perhaps they are intensifying.
Why do I say this? Because we all know that while the current economic data in the US seems good, it cannot be ignored that due to interest rate hikes, major banks in the US have suffered varying degrees of losses, with even the Federal Reserve's losses reaching around 800 billion. Moreover, with Trump's rise to power, the tense global situation will only become more acute.
And it is important to note that the biggest victims of de-globalization are not us, but the US itself. Because for a long time, a large number of multinational companies have been in the US, and their listings in the US capital market have brought prosperity to the US market. With Trump's de-globalization, will these multinational companies still achieve such high returns?
Moreover, besides this, we all know that the US capital markets have actually been a guiding light for global technological development. But what about now? AI is increasingly lacking imagination, leading to a rapid decline in the US financing market and its financing capabilities.
Without the support of current and future income, how far can the US stock market go? Moreover, the Federal Reserve is about to launch a surprise attack, which will inevitably cause panic in the US capital markets, and the final result will definitely spread. Today marks the 8th consecutive decline for the Dow Jones, and tomorrow could see a significant drop in the US stock market, further transmitting the crisis globally.
And it seems that Bitcoin is performing well today, but does it have any support? Not really, as it cannot improve production efficiency and cannot bring in substantial income, making it more like an apocalyptic carnival. With the Federal Reserve hitting the brakes, perhaps this feast will come to an abrupt end.
From this, we can see that the Federal Reserve's previous harvesting strategy was to raise interest rates to explode debt, while the US engaged in liquidity injections to buy low. Now, however, the US has changed its approach to a boiling frog model, gradually harvesting in a high-interest environment.
At this moment, we need to hedge against these circumstances. After all, the US's various abnormal actions do not seem to be mere distractions; they are more like intentional attempts to shift its own crisis outward, either igniting its own crisis to drag the world down with it, or harvesting in a boiling frog manner, coupled with other methods from the US.
This means that we need to be prepared in multiple ways, and the core of everything is economic stability. Only by stabilizing ourselves can we respond to changes without being affected.