Yellen vs. Powell: A Heavenly Battle with No Hope for Rate Cuts
Recently, the drama between the Federal Reserve and the Treasury has become increasingly interesting, so let’s break it down for everyone as an onlooker.
On May 15th, Federal Reserve Chairman Powell suddenly announced a change in rules. On the surface, it seemed like official jargon, but in reality, it was a showdown with the Treasury. It was great to throw money around during the pandemic, but now dealing with the inflation mess is equally painful.
Look at how prices have skyrocketed; the prices of everyday items like eggs and milk have never stopped rising, with official data exceeding expectations for three consecutive months. Powell keeps saying "wait a bit longer," but the market is already getting anxious. Earlier this year, there were hopes for six rate cuts this year, but now even two would be considered a blessing.
The Treasury is in a worse situation, with Yellen constantly talking about a "soft landing." But just look at the $34 trillion national debt the U.S. owes; the interest alone burns through $10 billion every day. Anyone would be frustrated in this situation, but can the Federal Reserve casually cut rates? Borrowing money is incredibly expensive now, with mortgage rates soaring to 7%, making it tough for ordinary citizens.
This situation has long been brewing; back when Silicon Valley Bank collapsed last year, the Treasury was eager to put out the fire, while the Federal Reserve was secretly tightening its purse strings. Now both sides are completely at odds, one wanting to hit the gas to stimulate the economy, while the other is firmly pressing the brakes to prevent inflation.
I think this is a vicious cycle: continuing to raise rates will lead to business closures, while cutting rates prematurely will cause prices to soar. The Federal Reserve is currently playing the delaying game, but the longer it drags on, the bigger the hole becomes. The latest news shows that even Moody's can't stand it anymore, directly downgrading America's credit rating from AAA to AA1, which is the last of the three major rating agencies to show any leniency.
As for the outcome? I see Trump’s tax reduction plan adding another $3.8 trillion to the deficit; the situation with U.S. debt is becoming quite unclear. Powell's term is coming to an end, and he will likely hold on to maintain the Federal Reserve's image, while the Treasury will eventually have to face the music. Honestly, in this heavenly battle, the ones who suffer in the end are still the common people, with prices not coming down, loans becoming unaffordable, and wallets getting thinner.
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