We mentioned that it is difficult for the Federal Reserve to do this now, and the current situation in the United States is as follows: on the one hand, the PMI, unemployment rate, non-farm payroll and other data have been declining for several months, and the market is gradually worrying about whether the US economy is going into recession; On the other side are the rising stock market and house prices in the United States, rising against the backdrop of high interest rates and declining economic fundamentals.
If the Fed doesn't cut interest rates, then the U.S. economic data will be even worse, and many will say there will be a recession. If the Fed cuts interest rates, although good for the economy, it will further stimulate the asset bubble in the United States.
Before the technology bubble in the United States in 2000, the Federal Reserve cut interest rates precautionaryly in response to the Asian financial crisis, but the Asian crisis did not hurt the United States, but caused a speculative bubble in stock markets that hurt the United State. To put it bluntly, prices in the U.S. capital markets are a bit divorced from the fundamentals of the U. S. economy, and the Fed's policies have difficulty dealing with this contradiction. Buffett has a "Buffett Metric," which measures the level of bubbles in capital markets by dividing the total value of the US stock market by GDP.
At its peak in early July, the figure exceeded 200; After falling last Friday, the value was still 186, still a very large bubble.
For the Fed to get things back under its control, there are only two scenarios.
One is that the economy is growing fast, no, rapidly, catching up with asset price increases; On the other hand, the stock and property markets fall, bringing capital markets and GDP back to normal ranges.
Either approach would eliminate asset bubbles and give the Fed the peace of mind to determine the pace of rate cuts based on economic fundamentals.
The first case is now 100% impossible, now the stock market bubble is too big, the US GDP growth even 10%, Buffett index is still in a very high position.
The only solution would be a fall in the stock market.
