Federal Reserve Chairman Powell’s policy expectations for September 2024 have attracted widespread attention. In particular, the market's expectations that the Federal Reserve may cut interest rates have given many economists some relief. As the global economy faces downward pressure, many observers believe that previous interest rate hikes have brought U.S. inflation (CPI) to a relatively controllable level, so the Federal Reserve may adopt a more conservative policy in September by cutting interest rates. to stabilize global markets. If this prediction comes true, the long-suppressed global economy may usher in a new round of growth opportunities, and several major economies, especially China, may benefit from this.
Even Federal Reserve Chairman Powell publicly stated on August 21 that the Federal Reserve would not rule out the possibility of cutting interest rates as this year's U.S. election enters its sprint, stressing that the time for policy adjustments seems to have arrived. However, from a practical point of view, these statements from the United States may only be superficial, and there is still a long way to go before the actual implementation of interest rate reduction policies. Because once the United States chooses to cut interest rates, this proactive financial war may lose its advantage.
### U.S. Goals
Before exploring the possibility of interest rate cuts, we first need to understand the original intention of this U.S. interest rate hike. Since March 2022, the Federal Reserve has raised interest rates multiple times, with the cumulative rate of interest rate hikes reaching 425 basis points. In 2023, the Federal Reserve also raised interest rates four times, by 25 basis points each in January, March, May and July, bringing the total rate hikes throughout the year to 100 basis points.
It is particularly worth noting that in February 2022, Russia announced a special military operation against Ukraine. As an important global food supply base, the war in Ukraine has had a major impact on the global economy. As Putin announced his actions, global supply chains were severely disrupted and inflation rose rapidly. The inflation rate in the United States reached 6% at the beginning of 2022, and the core inflation rate reached 5%. Therefore, the Federal Reserve started to raise interest rates to curb high inflation.
However, this is only superficial. The strength of the U.S. dollar in raising interest rates means that the currencies of other countries are weakening, and the impact of the Russia-Ukraine conflict is not limited to Russia. Therefore, the United States is actually using this opportunity to launch a global financial war with the goal of weakening the economic strength of other countries. When the economies of other countries are in trouble, the United States can cut interest rates to allow dollars to quickly flood into the global market, thereby harvesting the assets of other countries, which also helps relieve the debt pressure faced by the U.S. government.
### Important data analysis
Based on the above background, when we analyze the Fed's policy, we will discover the logic behind it. First, the U.S. GDP growth rate in the second quarter reached 3%, higher than the expected 2.8%. During the same period, the annualized rate of personal consumption expenditures reached 2.9%, and the core PCE price index reached 2.8%. These data show that in the context of raising interest rates, the U.S. economy is showing solid growth, which is particularly important for the Biden administration and the Democratic Party. Therefore, the possibility of cutting interest rates in the short term is not high.
Second, the Fed's inflation target has not been fully achieved. Although the Fed hopes to push the inflation rate down to 2%, it has not yet reached the target. There are also different voices within the Federal Reserve. For example, the president of the Atlanta Fed has said that more data is needed to judge whether it is appropriate to cut interest rates. This may hint at a strategic division of labor within the Fed, with Powell playing a hawkish role and the Atlanta Fed acting more cautiously.
Finally, judging from the trend of commodity prices, the price of light crude oil in the New York futures market at the end of August was US$73.55 per barrel, down 3.1%. Crude oil futures on the London Exchange were at $78.80 a barrel, down 1.43%. Gold prices also fell by about 1% at the end of August. Although some people think that this is a sign of interest rate cuts, in fact, such price fluctuations are still within the normal range and cannot be used as a basis for determining interest rate cuts. If the Fed does decide to cut interest rates, commodity prices could see even more dramatic changes.
### in conclusion
Based on the above analysis, it is unlikely that the Federal Reserve will cut interest rates in the short term. The interest rate cut expectations exaggerated by some media and politicians are likely to be a strategic smoke bomb to make other countries relax their vigilance. For China, the top priority is to guard against possible further tightening of monetary policy by the United States and a possible new round of "harvesting" operations in the global market.
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