Recently, the Federal Reserve made a big move by keeping interest rates unchanged in July for the fifth consecutive time, causing an uproar online. Some say this indicates that the US economy is struggling, while others criticize the Fed for their mismanagement. Today, I will use the hardest data to unveil the truth behind this game. You think the Fed isn’t cutting rates because the economy is weak? Wrong. They are playing a much bigger game.
First, let’s look at a set of data: in June 2025, the core PCE inflation rate in the US is 2.9%, the unemployment rate is 4.1%, and non-farm payrolls increased by 147,000. With these three numbers together, what do you think the Fed is afraid of? Not an economic recession, but a resurgence of inflation. Do you know what this means? The Fed would rather bear the blame than let inflation spiral out of control again.
Do you remember 2024? The Fed drastically cut interest rates five times in a row, and just as inflation was brought down, Trump’s tariffs caused prices to soar again. Now they have learned their lesson; rather than wait for inflation to explode and then scramble, it’s better to lock in interest rates now and draw a red line for the market. This move is called preemptive action, similar to setting a stop-loss in stock trading rather than taking profits.
Why does the current Federal Reserve not have the urgency to cut interest rates? What does an unemployment rate of 4.1% mean? It's even lower than before the pandemic. Are companies still struggling to hire? Look at Tesla and Apple, which one isn’t trying desperately to hire engineers? What does this indicate? The economy is fundamentally not bad; instead, tariffs are pushing prices up, and lowering interest rates would only add fuel to the fire.
Let me show you something shocking: the US import price index has dropped from a peak of 148.5 in 2022 to 141.8. What does this indicate? Companies are frantically stockpiling cheap goods to hedge against tariffs. But the problem is that these low-cost inventories will eventually run out. The Fed knows clearly that cutting interest rates now is like hitting the fast-forward button on inflation. It’s like boiling water; a skilled cook knows to turn off the heat just at the right moment, but adding water when it’s too hot will result in a disaster.
Someone asked if the stock market would crash if interest rates aren’t cut. Look at Tesla's earnings report; its gross margin dropped to 18%, yet its stock price went up. Why? The market has recognized the Fed's obsession with combating inflation. It’s like in a video game; knowing the boss won’t become invincible encourages you to take bigger risks. But Trump is not happy and keeps calling for Powell's replacement—what’s the hidden strategy behind that?
Think back to the 1970s when the Fed was politically hijacked, printing money wildly, resulting in inflation hitting 14%. Now Powell has learned his lesson, firmly sticking to a 2% target, even when Trump threatens to fire him. This reminds me of the Swordholder in 'The Three-Body Problem,' who would rather be called cold-blooded than let the system collapse.
There is a key model here called the Taylor Rule. Simply put, the interest rate equals the real interest rate plus the inflation rate plus 0.5 times the inflation gap plus 0.5 times the output gap. Currently, the inflation gap is positive, and there is basically no output gap with US GDP growth at 1.5% to 3%. According to the formula, the interest rate should be higher than it is now. Therefore, the Fed not lowering interest rates is actually following a mathematical formula, which is much better than some arbitrary decision-making.
But here’s the problem: high interest rates hurt businesses, and the financing costs for small and medium enterprises are almost comparable to usury. Yet have you noticed that big American companies are raking in profits? Apple is sitting on $130 billion in cash, earning interest on interest. This is the Matthew Effect; the Fed uses high interest rates to weed out the weak and make the giants stronger. Isn’t that a harsh tactic? It’s like scrolling through TikTok, where the algorithm only promotes top creators, leaving others with no chance to shine.
Let me ask a tough question: do you think cutting interest rates can save the economy? After the 2008 financial crisis, central banks globally flooded the market with tens of trillions, resulting in an ever-growing asset bubble. The Fed now would rather endure public criticism than let inflation run rampant. This is like a child with a fever; it’s better to use physical methods to cool down rather than randomly take medicine. Which is more critical: treating the symptoms or addressing the root cause?
So don’t be fooled by the rumor that not cutting interest rates means the economy is bad. The Fed is betting on how long the dollar's dominance can last. They are using high interest rates to hedge against tariff impacts and using data to counter political pressure. This is true rational madness.
Finally, here's a piece of advice: when looking at the economy, don’t just focus on the surface; look at who is making the rules and who is bearing the costs.
