Introduction
The United States is the world's largest economy, yet the economic conditions in recent years have caused concern for many.
Especially with the current economic data in the United States, the situation is not optimistic.
The Federal Reserve has also indicated that it is not in a hurry to cut interest rates, but the CPI data from Bronx College has disrupted the Federal Reserve's "three-year plan," plunging them into a dilemma.
Why is this data said to have put the Federal Reserve in a predicament?
It is worth noting that Powell also stated at a meeting: "There is no rush to cut interest rates," but now the huge deficit of up to 36 trillion has changed Powell's attitude.
How will the Federal Reserve respond?
As the U.S. economy faces huge deficits and other dilemmas, what decisions will the Federal Reserve make?
The poor U.S. economic data has left Wall Street confused.
Economists had expected the inflation rate to decrease over a certain period, but the inflation data released in September once again confirmed the previous high inflation rate, which was unexpected.It is often said that "inflation is a harbinger of economic recession." However, the current economic situation in the United States is severe, and coupled with inflation, it has directly led to a downturn in the job market.
According to the latest released data, the number of initial unemployment claims in the United States has reached 268,000, setting a new high for the past year. At the same time, the number of people applying for unemployment benefits again is also on the rise, with the number of people reapplying for unemployment benefits reaching a historical high of 1.7 million.
When the number of initial unemployment claims and the number of people reapplying for unemployment benefits are combined, it is called the "labor market." Its current value is at a historical high, showing signs of a severe economic recession.
Moreover, the latest inflation index released in the United States in September is 3.7%. In fact, this number is slightly higher than the expected 3.6%, and it is also the third consecutive month that the inflation level in the United States has not decreased.
As a result, there are currently many expectations in the market for the Federal Reserve to lower interest rates. Although Federal Reserve Chairman Powell has said, "We will not rush to lower interest rates," there are now "differences of opinion among decision-makers."
There has even been a "hawkish" meeting, for example, at the Federal Reserve's September meeting, Powell did not discuss "interest rate hikes" on issues related to interest rates. However, this does not mean that the CPI in September was higher than expected, and the Federal Reserve did not change its interest rate hike.
Judging from the current situation, the direction and significance reflected at the Federal Reserve's September meeting are relatively complex, leading to doubts in the current financial market about whether interest rates will be lowered in the future.
A spokesperson for the Federal Reserve once said, "There are currently no satisfactory results," and believes that the CPI exceeding expectations is the key to current domestic issues in the United States.Only when the CPI level in the United States decreases to a certain extent can the Federal Reserve make further decisions on interest rate policy.
Although the Federal Reserve will make corresponding predictions for the future based on data forecasts, it does not necessarily mean that it will be the case. If the current economic data in the United States changes, then the Federal Reserve's predictions and policies will also change accordingly.
At the Federal Reserve meeting in September, Powell's attitude made people doubt whether he would make corresponding decisions in the face of poor economic data.
Powell stated publicly: "I don't want interest rates to deviate from the target task", but looking at the current economic situation in the United States, will the Federal Reserve's interest rate hike decision lead to an economic recession in the United States?
Because the reduction of the inflation level in the United States will ultimately be related to the interest rate level set by the Federal Reserve.
U.S. Treasury yield and dollar exchange rate fluctuations.
Recently, due to Powell's remarks about "not being in a hurry to cut interest rates", it directly stimulated the benchmark U.S. Treasury yield for 10 years to rise to 4.12%.
In the face of uncertain interest rate hike prospects, the yield of the benchmark U.S. Treasury for 10 years has risen to 4.12%, indicating that the market demand for U.S. Treasury bonds is decreasing, leading to an increase in the yield of U.S. Treasury bonds.
Therefore, in this unstable economic situation, investors have thrown out their assets one after another in order to avoid risks and other issues, and this behavior has led to an increase in the yield of assets such as U.S. Treasury bonds.
However, high returns also contain high risks.If investors make investments at this time, they are very likely to suffer losses and other issues.
However, if they sell their assets and turn to other financial products with high safety, although the economy is relatively stable, there is still a certain risk.
Even if the financial market in the United States is a relatively stable economy on a global scale, the decline in domestic GDP and the inflation rate still at 3.7% all indicate that the U.S. economy has also entered a period of recession.
But if you look at the international market, "the yield on U.S. Treasury bonds in the international market has risen by 10 basis points, and the U.S. dollar exchange rate has increased by 1.5%."
It is precisely because there is a strong substitutability between U.S. Treasury bonds and the U.S. dollar.
In other words, the yield on U.S. Treasury bonds with a term of 10 years is 4.12%, 4.57%, while the yield on international Treasury bonds is 2.9%, 2.42%.
Although the yield on U.S. Treasury bonds is much higher than that on international Treasury bonds, if you compare the inflation rate in the United States with the international inflation rate, the real yield in the United States is actually lower.
It is precisely because Federal Reserve Chairman Powell announced that he would not rush to cut interest rates, which leads to the inflation rate being difficult to reduce in the short term, and may even lead to high inflation, which is not conducive to economic growth in the United States.
Looking at the current economic situation, it will take about two years for the United States to return to a normal economic level.
When Powell made a statement about "not rushing to cut interest rates," the decision to cut interest rates depends on the inflation rate in the United States, and he also chose to let the American people guess by themselves.At present, the economic situation in the United States has changed significantly from the past. Facing the current uncertain economic situation, Powell remains very optimistic.
Due to the still relatively high level of inflation in the United States, many investors are hesitant to make bets easily. Although the Federal Reserve's decision to stop raising interest rates has had a certain impact on investors.
Moreover, due to the lack of unified opinions within the Federal Reserve at present, investors may not be sure about the future, which also affects whether the Federal Reserve will make corresponding changes.
How will the Federal Reserve make decisions?
The Federal Reserve wants their economy to grow, and they must rely on refinancing. The refinancing rate is stable at 5.4% or higher, and the current interest rates are already at the highest level.
Therefore, the United States also faces difficulties in policy decision-making in the future because the Federal Reserve has not decided whether to stop raising interest rates at the meetings in November and December this year, which also brings uncertainty and risks to the future economic situation.
The Federal Reserve faces a relatively difficult economic situation at present, but for investors, if they want to gain more benefits through investment, they must remain calm and make judgments after careful consideration.
Investors need to learn to break the deadlock when facing the uncertain financial market. Different forms of investment can allow funds to develop in a diversified direction.
If investors invest funds in different markets, they can avoid certain risks faced by investors due to fluctuations in a single market.
Therefore, when investing, investors should learn to diversify their funds, which not only avoids large-scale capital losses but also allows for more gains.Conclusion
Faced with such a complex financial market, as ordinary investors, it is necessary to remain calm. One should allocate their assets reasonably to avoid being influenced by fluctuations that affect their judgment. For the Federal Reserve, being disoriented makes its future economic situation even more uncertain. The Federal Reserve also has to face a huge deficit of 36 trillion dollars. How should this account be calculated? Perhaps only Powell has a clear idea in his mind. As for the future direction of the Federal Reserve, it makes investors feel even more confused.
The economic development of the United States is a constantly changing process. The Federal Reserve will change according to the changes in the market. It is also hoped that in the future, it can make wise decisions and maintain the economic development of the United States.
