I seem to have somewhat understood why the Federal Reserve has consistently insisted on not lowering interest rates, even in the face of strong pressure from the Trump administration. I believe it is not merely an issue of inflation.

Recently, the yield on the 30-year U.S. Treasury bond has surpassed 5%, which is easy to interpret. This means that if you do not raise interest rates, no one will buy the 30-year long-term debt. This also indirectly reflects a point: everyone has a poor outlook on the long-term stability of the U.S. dollar.

The dollar may long-term be in a depreciation channel, so even the 5% yield on U.S. Treasuries is becoming less attractive. For example, if the dollar is inflating at 3% and depreciating by 3% in a year, and your U.S. Treasury yield is 5%, then your real yield is actually -1%. This means that investing in long-term U.S. Treasuries is a losing proposition. Do you think there will be funds willing to gamble on that?

Therefore, capital must flow out of the United States, as the capital that initially flowed into the U.S. was attracted by the strength of the dollar and the yield on U.S. Treasuries. However, if the Federal Reserve continues to lower interest rates, that capital will accelerate its outflow, and then there will be even fewer buyers for U.S. Treasuries, leading to rising yields and a vicious cycle.

Ultimately, the Federal Reserve will have to step in and absorb all U.S. Treasuries through infinite QE, which will then cause inflation to explode. Once inflation explodes, it will undoubtedly be the fault of the Federal Reserve. Therefore, no matter how the Federal Reserve chooses, it cannot control inflation. The current delay in lowering interest rates is actually due to fears of a series of adverse reactions caused by U.S. Treasuries.

If tariffs are not reduced, long-term inflation will be even more exaggerated. So it is better to push the decision back to the Trump administration. If you do not impose high tariffs, my long-term inflation may not go out of control. Then the Federal Reserve will consider lowering interest rates, which is like passing the ball to the Trump administration. Regardless of the outcome, it will not be the Federal Reserve's responsibility.

Now it depends on how the Trump administration chooses. If Trump lowers tariffs now, isn't that just slapping his own face in front of the whole world?

But does Trump have any face left? Perhaps he will first promise the Federal Reserve to lower tariffs, wait for the Federal Reserve to lower interest rates, and then reimpose tariffs, creating a situation of reciprocal tariffs. This may be hard for ordinary people to understand, but for the unpredictable Trump, anything is possible!