Recently, news about the Federal Reserve's interest rate cut has been buzzing, suggesting that at the Fed's interest rate meeting on the 18th of this month, there might be a significant rate cut, possibly by 50 basis points.
Opinions on this news are mixed both domestically and internationally.
Some believe it's great news that could help the U.S. emerge from its current economic slump.
However, some countries are very worried about this news, fearing that the U.S. is trying to shift its current crisis onto the rest of the world.
In fact, regardless of whether it's good or bad, will the Federal Reserve really cut interest rates?
If so, by how much?
To understand this issue, we need to look at some of the economic context behind it.
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Before 2016, the U.S. had been in an era of low interest rates.
After 2016, when Trump took office, the Federal Reserve began a series of interest rate hikes aimed at easing the U.S. inflation problem.
The Trump administration also implemented a series of tax cuts domestically, which made the inflation problem in the U.S. increasingly severe, making interest rate hikes an inevitable choice for the Federal Reserve.
By raising interest rates, the U.S. could attract the inflow of dollars globally, indirectly lifting the currency value of the dollar and thus achieving the goal of reducing the U.S. inflation rate.
However, despite the effectiveness of interest rate hikes, the U.S. economic problems have not been effectively alleviated, especially after 2020.
Due to the excessive "money burning" by the Trump administration, the domestic debt problem in the U.S. has become increasingly serious.
Moreover, the U.S. trade protectionist policies have also brought a significant shock to the global economy, leading to a noticeable slowdown in global economic growth.
Under such circumstances, the U.S. inflation problem has not been fundamentally alleviated.
Some key economic indicators in the U.S., such as the CPI and PPI indices, have shown a steady downward trend, falling from 8% to the "safety line."
The inflation problem in the U.S. seems to be good news, but upon closer analysis, it is found to harbor a huge economic crisis.
Although the U.S. printing press has been running, the fiscal revenue of the U.S. remains very limited.
The U.S. currently bears a debt of up to 35 trillion U.S. dollars, and the allocation in the U.S. fiscal budget to pay the interest on U.S. debt has exceeded 1 trillion U.S. dollars, much higher than the U.S. military budget of the same year.
This means that once the U.S. fails to repay its debt, even a major country like the U.S. cannot escape the fate of bankruptcy, and at that time, the U.S. debt problem will bring a significant impact on the global economy.
In order to quickly get rid of the current economic problems, the U.S. has started a massive interest rate cut campaign, hoping to stimulate the domestic consumer market in this way and alleviate the current economic problems.
Interest rate cuts are a double-edged sword for the U.S. After the rate cut, the U.S. inflation problem may become increasingly serious, and some extremely important economic data, such as the U.S. housing index, may "rebound" in a short period of time, which means the U.S. may fall into a very serious inflation, also known as "stagflation."
Interest rate cuts may also cause significant fluctuations in the U.S. financial market, and even lead to the collapse of the U.S. stock market, which is undoubtedly a very significant economic crisis for the U.S.
However, if the U.S. does not cut interest rates, the current economic problems will not be alleviated.
At that time, the U.S. debt problem may cause the U.S. fiscal institutions to shut down, which will bring a significant economic crisis to the U.S. and the world.
Therefore, interest rate cuts are actually a very painful thing for the Federal Reserve, and it can also be said that interest rate cuts are just a temporary alleviation of the current economic problems, but the underlying economic crisis has not been fundamentally resolved.
For other countries, especially some important economic powers, such as China, what does an interest rate cut mean, and how should they respond?
After the U.S. interest rate cut, the U.S. will face a very serious inflation problem, and the U.S. financial market will also experience significant fluctuations, which brings a significant impact on the export trade of other countries.
China's foreign exchange reserves will depreciate due to the devaluation of the U.S. dollar, which means that the export products of other countries will become more and more expensive, causing significant losses to the export trade of other countries.
Therefore, after the U.S. interest rate cut, China needs to be prepared.
China should do its own macroeconomic policies well, increase macroeconomic regulation domestically, and strengthen policy coordination externally.
It should actively participate in global economic governance and promote sustainable growth of the global economy.
China should also increase its foreign investment efforts.
For example, China can purchase a large amount of U.S. tangible assets, such as real estate, which can effectively avoid the losses brought to China by the fluctuations in the U.S. financial market.
China can also continue to purchase a large amount of gold in the international market, which can effectively increase China's foreign exchange reserves and protect China from the impact of U.S. inflation problems.
Under the current global economic situation, the disputes of interests between countries are increasing, and various economic problems are emerging endlessly.
The U.S.'s series of economic policies have undoubtedly brought a significant impact on the global economy.
Therefore, under the current situation, countries, especially some important economic powers, need to strengthen cooperation, jointly deal with various economic problems, and promote the global economy to get out of the predicament as soon as possible and achieve sustainable economic growth.