In the past two weeks, the world's attention has been drawn to Trump's global tariffs and the hard confrontation between China and the U.S., but there is another front that may have been overlooked, which is the confrontation between Trump and the Federal Reserve.
On April 9, at a time when U.S. stocks, bonds, and the dollar were all being hit hard, the Federal Reserve remained inactive, leaving the situation to worsen, forcing Trump to announce: tariffs will be suspended for 90 days.
On April 16, Federal Reserve Chairman Powell delivered an unprecedented hawkish speech: he is bearish on the U.S. economy.
1. The inflation shock caused by tariffs has exceeded the Federal Reserve's highest expectations, and the Fed lacks sufficient experience to handle such high tariffs.
2. U.S. manufacturing may continue to be disrupted in the coming years, which could lead to long-term inflation issues.
3. The U.S. government has reduced research funding to save costs, which could have a significant impact on employment and may long-term lower the productivity of the U.S. real economy.
4. The U.S. government's debt has entered an 'unsustainable trajectory.'
5. The Federal Reserve's primary goal is to control inflation and stabilize employment. Even if the market crashes, the Fed will not easily lower interest rates, nor will it yield to Trump's political pressure.
Moreover, after Powell's speech, there was applause from the audience, indicating that this speech was not just Powell's personal view, but a consensus of the Federal Reserve.
On April 18, Trump delivered a speech at the White House, reiterating that Federal Reserve Chairman Powell should lower interest rates. This marks the second consecutive day that Trump has pressured Powell, and since taking office, he has consistently called for Powell's removal.
It is unprecedented for a country's president and its central bank governor to be at such odds. This is mainly due to the independent status of the Federal Reserve. Unlike other countries' central banks, the Fed has both government functions and private characteristics. Moreover, judging from Powell's speech on the 16th, even if Trump could remove Powell, he would not be able to sway the consensus of the Federal Reserve, as the Fed Chair only has one vote.
The other day, I wrote in my article that the main battlefield of the tariff war between China and the U.S. has shifted; they will no longer fight over tariff issues but will focus more on rallying allies, leading to many opposing camps and also many fence-sitting countries in the future.
In this process, the approaches of China and the U.S. are also different. China seeks to build relationships, promote cooperation, and achieve win-win outcomes, which is why the top leader visited three Southeast Asian countries a few days ago.
Meanwhile, the American approach remains to pressure, intimidate, and act as if you don't exist.
Such hegemonic practices may have certain short-term effects, but in the long run, they will inevitably backfire. When the U.S. faces a serious economic crisis, to save the American economy, either Trump must compromise, or the Federal Reserve must compromise, or China must compromise. But will China compromise? Definitely not.
In 2018, during the trade war, we would buy more U.S. energy and agricultural products, but this time, we have already allocated energy orders to Australia and the UAE, meaning that China has left no bargaining chips for negotiations with Trump, leaving no room for compromise, and will stand firm.
So will the Federal Reserve compromise? I think the probability is low. Currently, the consensus of the Fed to maintain inflation by not lowering interest rates and not rescuing the market is still very clear. Even removing Powell will not quickly change this consensus, leaving only one option: Trump must compromise, find a way out for himself, and end the tariff war. This may also be the reason why the market only slightly retreated after Powell's hawkish speech on the 16th, rather than experiencing a significant drop.
This is also the basic logic of what I said the most dangerous time has already passed two days ago.
If you understand these logics, you won't be scared by short-term fluctuations or speeches.