The US President and the Chairman of the Federal Reserve often "fight" over the issue of interest rate cuts. Behind this is actually a contest between "short-term political achievements" and "long-term economic health". We use several key points to dismantle this phenomenon:

1. The president’s plan: votes

- Cutting interest rates is like giving the economy a "stimulant", which can quickly stimulate stock market growth and employment growth

- Especially in election years (such as 2024), the president hopes to use short-term economic prosperity to exchange for re-election

- Trump asked for a rate cut to 1% because he wanted to replicate the "stock market frenzy" to boost his election campaign

2. The Fed’s bottom line: Don’t be the scapegoat

- Burns, the chairman of the Federal Reserve in the 1970s, is a living negative example

- He succumbed to Nixon's pressure and cut interest rates drastically, which resulted in hyperinflation (prices rose 13% per year)

- Powell now prefers to be called "incompetent" by Trump rather than repeat the same mistakes

3. Classic case: Nixon's "killing the goose that lays the golden eggs"

- The forced interest rate cut of 1.5% in 1971 did help Nixon win re-election

- But then prices soared, people's wages shrank, and the economy collapsed

- This lesson made all subsequent Fed chairmen nervous

4. Trump's "fancy pressure"

- First move: Public humiliation (saying Powell is "stupid")

- Second move: Threaten layoffs (implying the replacement of the Fed chairman)

- The third move: Creating momentum (mobilizing fans to criticize the Federal Reserve)

5. Why are you so competitive this time?

- With the 2024 election approaching, Trump needs a quick economic boost

- The US government debt has exceeded 34 trillion US dollars, and it is urgently needed to cut interest rates to reduce the interest burden

- However, the current inflation is still fluctuating (rebounding to 3.4% by the end of 2023), and Powell dare not relax

This situation is like a parent (the Federal Reserve) disciplining a child who spends money recklessly (the president): "If you overdraw your credit card to buy toys now, your whole family will have to eat dirt next month!" But the child always thinks, "Enjoy the fun first, and talk later."

The latest development is that although Powell resisted the pressure to postpone the interest rate cut, Wall Street generally predicts that there will still be a symbolic interest rate cut of 0.25%-0.5% before the election. After all, no one wants to be fired by the president. In this game of power, both sides may eventually take a step back.

BTC

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ETH

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SUN

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