The US cuts interest rates, why will other countries follow suit?
If other countries do not follow suit, what will be the impact?
Assume that before the rate cut, the exchange rate of the US dollar to the Japanese yen is 1 to 10, 1 US dollar can be exchanged for 10 Japanese yen. At this time, Japan sold a car to the United States and earned 300 US dollars, which is 3,000 Japanese yen in Japanese yen. However, the Federal Reserve cuts interest rates at this time, which will lead to the depreciation of the US dollar. Now 1 US dollar can be exchanged for 8 Japanese yen. At this time, Japan sold a car to the United States, although it still earned 300 US dollars, but it is 2,400 Japanese yen in Japanese yen, which means a loss of 600 Japanese yen. If Japan does not want to make a loss-making business, it can only follow the United States to cut interest rates, let the Japanese yen depreciate, and return to the original exchange rate, so that it can continue to make money. So the same is true for major countries around the world. In order not to lose money in export trade, they have to follow the United States to cut interest rates, and the interest rate cut will also lead to a decline in loan interest rates and deposit interest rates in various countries. So with this decline, what about the pressure on corporate loans? If it gets smaller, they will be more willing to borrow money to expand and grow. If the income of residents' deposits gets lower, they will be more willing to choose to spend money and invest, so it will further stimulate the economy. This is why it is said that when the Fed cuts interest rates, it is the day when China's wealth reshuffle begins.
