I think there is a possibility that the Federal Reserve will cut interest rates in the second half of next year. But this possibility is based on the outbreak of a relatively serious liquidity crisis in the United States, which in turn triggers a financial crisis and forces the Federal Reserve to cut interest rates.
If this is the case, then the Fed's interest rate cut is not a good thing, but a sign of the outbreak of the financial crisis. It is not the interest rate cut that causes the financial crisis, but the financial crisis that forces the Fed to cut interest rates.
As mentioned earlier, the current scale of the Fed's reverse repurchases has dropped to US$865.9 billion. If this rate of decline continues, the Fed's reverse repurchases will be exhausted in up to four months.
Even taking into account the hysteresis of market liquidity transmission, if we give the United States another quarter of buffer time, the liquidity in the U.S. financial market will dry up in the second half of next year.
By that time, if the United States still cannot find a big buyer to take over U.S. debt, a liquidity crisis will erupt in the U.S. financial market, which may trigger a financial crisis and force the Federal Reserve to cut interest rates.
Therefore, there is not much time left for the Fed to continue to talk tough.
