The Real Reason the Federal Reserve Refuses to Lower Interest Rates
The current situation is very delicate—the Federal Reserve is under pressure from the Trump administration and refuses to lower interest rates. On the surface, it's due to inflation, but I believe the deeper reason is the trust crisis in long-term U.S. Treasury bonds.
Recently, the yield on the U.S. 30-year Treasury bond broke 5%, which is a very dangerous signal. Why? Because normally, such a high yield should attract global funds, but the problem now is—no one dares to hold U.S. dollar assets long-term.
The Fatal Problem of U.S. Treasuries: Real Yields May Be Negative
Assuming the U.S. dollar depreciates by 3% per year, and the Treasury bond yield is 5%, then the real yield is only 2%. But if the market expects a higher long-term depreciation of the dollar, say 5%, then the real yield from buying U.S. Treasuries is 0% or even a loss. In this case, capital will only flee the U.S. faster.
The Fed's Dilemma: Lowering Interest Rates = Capital Flight, Not Lowering Interest Rates = Debt Collapse
If the Federal Reserve lowers interest rates:
The yield on Treasuries declines, capital thinks the returns are too low, and accelerates outflow.
No one buys Treasuries, the U.S. government can't borrow money, and can only continue to raise interest rates, creating a vicious cycle.
If the Federal Reserve does not lower interest rates:
High interest rates crush the economy, businesses collapse, unemployment rises, and social unrest occurs.
Ultimately, it may be forced to restart unlimited money printing, directly buying all the unwanted Treasuries, leading to severe inflation.
What is the Federal Reserve Waiting For? Shifting Blame to Trump
The Federal Reserve's attitude is very clear now: “High inflation? Blame Trump's tariffs!”
If Trump lowers tariffs and imported goods become cheaper, inflation may fall, and the Federal Reserve will have a reason to lower interest rates.
But if Trump continues to raise tariffs, the blame for out-of-control inflation will fall on him, allowing the Federal Reserve to maintain its innocence.
What Will Trump Choose?
In line with his style, he may first pretend to compromise, wait for the Federal Reserve to lower interest rates, and then secretly raise the tariffs again. After all, he backtracks faster than flipping a page, and the global market has long been accustomed to it.
Conclusion: Lowering Interest Rates is Just a Matter of Time, but the Consequences Are Uncertain
The Federal Reserve is currently holding on, but it will ultimately lower interest rates—it's just a matter of timing.
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