The market currently expects the Fed to cut interest rates, but there are many conflicting views internally about the timing and extent of the cuts.

Pressure from the U.S. President and Treasury Secretary urging the Fed to significantly cut interest rates has been met with warnings from experts that current conditions do not support this due to persistent inflation risks alongside slow growth.

MAIN CONTENT

  • The Fed is under pressure to cut interest rates from senior leaders in the U.S.

  • The biggest risk is the quasi-stagflation situation complicating monetary policy.

  • The current policy still prioritizes controlling inflation expectations over rapidly promoting growth.

What pressure is the Fed facing from the U.S. government regarding interest rate cuts?

According to a CICC research report on August 19, the U.S. President and Treasury Secretary have pushed the Fed to implement a significant interest rate cut to support the economy. This pressure stems from concerns about slow growth and the current economic instability.

The call from senior leadership for the Fed to cut interest rates reflects a desire to immediately boost growth and relieve financial pressures on businesses and individuals.

Interest rate cuts should be carefully considered as the potential risks from prolonged inflation could harm long-term economic stability.

Internal research citation, CICC, August 2023

Why do experts believe that current conditions are not suitable for the Fed to make significant interest rate cuts?

Experts emphasize the risk of quasi-stagflation – a situation of slow economic growth combined with persistent inflation – as the main challenge facing the Fed. This environment makes it difficult for monetary policy to simultaneously promote growth and price stability.

Therefore, a strong cut in interest rates at this time may not resolve the underlying issues and could increase the risk of runaway inflation, affecting market expectations for prices.

How will the Fed adjust monetary policy in the current context?

The Fed will prioritize stabilizing inflation expectations rather than pursuing short-term solutions to stimulate growth. This indicates that the organization will be cautious in cutting interest rates, avoiding moves that could pressure inflation to rise again.

Moreover, the slowdown in job growth alongside entrenched inflation increases the difficulty and uncertainty of monetary policy, requiring the Fed to balance multiple opposing factors.

The Fed will maintain caution in its decisions more than ever, aiming to prevent prolonged inflation and push the economy into a more serious state of instability.

Insights from the CICC report, August 2023

What are the main risks facing the U.S. economy today?

The biggest risk is quasi-stagflation – a slowdown in economic growth alongside persistently high inflation. This situation conflicts with traditional monetary policy goals, complicating and challenging the adjustment process.

These factors occur in a context of political and economic confrontation, making the Fed's monetary policy path difficult to predict and fraught with potential risks.

Frequently Asked Questions

How does the U.S. government's pressure to cut interest rates affect the Fed?

This pressure creates careful considerations, requiring the Fed to balance between promoting growth and controlling inflation, maintaining a cautious policy.

What is quasi-stagflation and why is it dangerous?

Quasi-stagflation is a combination of slow growth and sustainable inflation, making monetary policy adjustments difficult and increasing the risk of economic recession.

Is the Fed likely to make significant interest rate cuts in the near future?

Based on current conditions, the Fed is likely to avoid significant cuts, prioritizing inflation stability and market expectations over rapid growth stimulation.

How does a cautious monetary policy affect financial markets?

Cautious policies help control long-term inflation but may create short-term pressures on growth and increase volatility in financial markets.

What factors make it difficult for the Fed to predict future policy?

The slowdown in job growth and persistent inflation is causing the path of monetary policy to become complex and difficult to predict.

Source: https://tintucbitcoin.com/fed-giu-lai-suat-on-dinh-sap-toi/

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