On July 10 at midnight Beijing time, the Federal Reserve released the minutes of the Federal Open Market Committee (FOMC) meeting held on June 17-18.
The minutes show that attending Federal Reserve officials have differences on the future direction of monetary policy. Although most officials believe 'this year is suitable for rate cuts,' debates about timing and magnitude are unusually intense.
Why do the Federal Reserve's every move attract such great attention? What is the logic behind the interest rate cut? Why is it said that the results of this rate cut will impact everyone's wallet?
Today, let's unravel the layers and help you understand the underlying logic and potential impacts of this policy shift.
Why is the world closely watching the Federal Reserve's interest rate cuts?
The Federal Reserve's monetary policy is not only the 'steering wheel' of the U.S. economy but also the 'main valve' of global liquidity. Its influence is reflected in three levels:
1. The 'barometer' of capital markets: Interest rate cuts by the Federal Reserve often mean a decrease in market funding costs, making corporate financing easier, and risk assets such as stocks and bonds may enter an upward cycle.
For example, after the 2008 financial crisis, the Federal Reserve cut interest rates consecutively and initiated quantitative easing, directly driving U.S. stocks into a ten-year bull market.
2. The 'trigger' of exchange rate fluctuations: Interest rate cuts may lead to a depreciation of the dollar, while emerging market currencies may appreciate in relative terms, thereby affecting multinational corporations' profits and the global trade landscape.
After the Federal Reserve's interest rate cut in 2020, currencies such as the renminbi and euro strengthened, attracting a large influx of international capital into Asian markets.
3. Economic expectations as a 'barometer': The Federal Reserve's decisions reflect its judgment on the economic outlook for the United States and even the global economy. If interest rate cuts occur, it may indicate a slowdown in the U.S. economy, and other global economies may also be forced to adjust their policies in response.
Why is the Federal Reserve considering an interest rate cut? Economic weakness or political pressure?
On the surface, the Federal Reserve's interest rate cut is aimed at addressing economic slowdown, but the deeper reasons are far more complex than they appear:
1. Divergence in economic data: Although the U.S. unemployment rate remains low, signs of weakness in manufacturing and weakening consumer momentum have raised concerns.
Goldman Sachs points out that the U.S. labor market 'appears healthy, but finding a job is becoming more difficult.' Seasonal factors and changes in immigration policy may further suppress job growth.
2. The 'expectations game' of inflation: Federal Reserve Chairman Powell has repeatedly emphasized that 'a decline in inflation is a prerequisite for interest rate cuts,' but the minutes from the June meeting show that officials expect inflation to rebound to 3% in the coming months.
This contradictory attitude reflects the dilemma of policy—avoiding uncontrolled inflation while fearing a hard landing for the economy.
3. Underlying political pressure: The Trump administration has recently exerted frequent pressure on the Federal Reserve, calling on Wednesday for the Fed to lower the federal benchmark interest rate by at least 3 percentage points to help reduce the cost of repaying national debt.
However, in the face of pressure, Federal Reserve Chairman Powell has repeatedly stated on various occasions that he will not yield to political pressure when formulating monetary policy.
He insists that in the context of a strong economy and uncertain inflation, the Federal Reserve is in a favorable position to remain patient before obtaining more information.
What chain reactions will an interest rate cut trigger?
Citigroup believes that despite last week's relatively strong employment data blocking a potential rate cut in July, the consensus among Federal Reserve officials regarding cooling inflation is driving the initiation of rate cuts in September.
If the Federal Reserve indeed initiates interest rate cuts in September, global markets may exhibit the following trends:
1. Stock market: A coexistence of short-term euphoria and long-term concerns. Goldman Sachs predicts that interest rate cuts will drive the S&P 500 index up by over 10% in the next 12 months, with tech stocks and the consumer sector being the biggest winners. However, there is a need to be wary of the risk of 'good news being fully priced in.'
Deutsche Bank points out that if the rate cut is less than expected or economic data deteriorates, the market may fluctuate in the opposite direction.
2. The dollar: The 'seesaw effect' under depreciation pressure. The dollar index may fall below the 100 mark, while currencies like the renminbi and yen may strengthen temporarily, benefiting export-oriented economies such as China.
Emerging market assets (such as gold and Hong Kong stocks) will attract more capital inflow, but countries with high debt may face exchange rate shocks.
3. Corporations: A coexistence of loosened financing and cost pressures. The cost of issuing corporate debt in the U.S. has decreased, and tech giants are expected to increase their buybacks, but export-oriented companies may suffer profit losses due to the depreciation of the dollar.
The Federal Reserve's interest rate decisions are never simply an 'economic issue,' but rather a complex game involving economics, politics, and international relations.
For us, instead of guessing the policy path, it is better to focus on two major anchors: the true trend of inflation data and the coordinated actions of global central banks.#美联储何时降息？