ATFX - Federal Reserve cuts interest rates, how far is it?

Global stagflation, China's new cycle, embracing a once-in-a-lifetime opportunity

The macro environment will be turned upside down

In fact, the global market is no longer so concerned about the Federal Reserve's rate hike cycle.

For no other reason, everyone knows this stuff won't be awesome for long.

It took a year and a half for the federal base rate to go from 0% to around 6%, which is a major event not seen in the past 40 years.

That's it, the global economy has not yet exploded, and the rest of the world can still hold on to it, which can be regarded as awesome.

However, the Federal Reserve will not be able to resist this stance for long.

First of all, under the Federal Reserve's interest rate reduction cycle, the Federal Reserve can profit from it; but now that the Federal Reserve is raising interest rates, the Federal Reserve's arbitrage will turn into a loss. According to the Federal Reserve's own calculations, it is expected to lose $100 billion this year. This means that the US fiscal revenue will be 100 billion dollars less.

It is conceivable that if interest rates are allowed to run high for a long time, neither the Federal Reserve nor the US Treasury can bear it.

Secondly, the Federal Reserve raised interest rates before the start of the reverse repurchase idle funds of 1 to 2 trillion US dollars, specifically to deal with the problem of insufficient liquidity in the market during the interest rate hike cycle. Therefore, a large part of the recent US fiscal frenzied bond issuance is to suck up these idle money. Then, after all, it has been more than a year, and the fund pool of reverse repurchase has already dropped significantly. So, what should I do if the US fiscal department continues to issue new bonds later?

Thirdly, the large-scale issuance of excess benefits during the epidemic in the United States in the past two years has generated huge household savings. However, recently, the poor have no savings and have to go to work. In fact, this is also the main reason why the recent US employment rate data is very good. According to the current progress, it is expected that as soon as the fourth quarter of this year, the idle funds of this part of the household will be almost used. So, if we don't give some easing benefits later, 70% of the US GDP is driven by consumption. How can it be driven?

Also, next year is the general election, and raising interest rates in an election year is a political event. Because this means that Powell directly sides with the Republican Party and opposes Biden's Democratic Party. As long as the brain is a little clearer, it is basically not going to do this kind of thing. Looking back on the 2020 election year, the Federal Reserve also took the opportunity to pump water like crazy, and that's why. With the degree of tearing between the two parties in the US Congress today, the Federal Reserve chairperson's decision to raise interest rates is basically in danger.

Therefore, regardless of the angle, interest rate hikes are already the tail end, and interest rate cuts are the inevitable trend.

So remember, we said this before.Raising interest rates is to cut interest rates.

Now that there is nearly 6% room for interest rate cuts, it has to be said that the Federal Reserve has an extremely abundant supply of bullets for subsequent stimulus.

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In the first half of this year, the US CPI was well controlled year-on-year, but then the Federal Reserve said it was all their fault.

Now, the actual situation is highly complex.

Rate hikes + quantitative tightening

International oil prices are falling

The strong dollar has its own anti-inflation function

Chinese demand is falling

Among them, the lack of momentum in China's demand has also greatly helped the United States fight inflation.

Recently, it has been very interesting that after Biden publicly swore against the Chinese economy, as long as they sided with the United States, they all went out to sing against the Chinese economy and the Chinese property market every day.

Is this really worth the pleasure of the Americans? China is the second largest in the world's GDP. The Chinese economy is really failing. It will be more than expected for the world to accelerate into a large-scale depression. Orders from China will be greatly reduced. How can this be a good thing that Biden said?

Obviously, the current leading figures who still care about what major, just want to fight back and forth every day.

However, if China stimulates domestic demand in the future, then China's ability to help the world bear inflation will be greatly reduced in the first half of this year. In other words, subsequent global prices will also be topped

Considering that China's domestic demand is mainly driven by real estate, we will encounter an epic showdown:

Fed rate hikes vs Chinese real estate stimulus

The Fed's interest rate hike is nearing the end, and China's real estate has just begun. Then global inflation continues to rise, and it is estimated that it is also a force that is difficult to resist. What about the Fed?

Assuming that the Federal Reserve has to cut interest rates next year, and China's stimulus dividend becomes more explicit next year, the superposition of the two forces will better boost global aggregate demand. What about inflation?

Obviously, this will be a completely different macro environment from our current situation. If we are not well-prepared, it is estimated that we will be slapped back and forth.A Sen has reminded you of this key point more than once. I hope you can pay attention to it. Don't wait until the situation really changes. A Sen has reminded you before that he did not prepare for anti-inflation and wealth protection in advance.

In fact, the Federal Reserve has indeed reached an important juncture to stop raising interest rates.

Although the desperate interest rate hike did not happen immediately, over the past few years, so many financial risks have been hidden in the US financial system, and so many national debts rely on the financial system to carry the explosive package. If the interest rate hike is excessive and a little careless, there will really be something wrong in the follow-up, which is to burn the joint venture and cannot be dealt with at all.

It is better to announce that we will observe it now, temporarily stand still, temporarily look more and move less, and prepare for the withdrawal of the interest rate hike cycle.

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In fact, there is a core issue that has been ignored in this round.

Specifically, what does it mean if the Fed cuts interest rates again without CPI returning to 2%?

Have you ever considered such a possibility?

The first wave of interest rate hikes pushed the CPI to around 3%; then after the interest rate cut, the CPI was pushed up again, and the people were under great pressure to scold their mothers; the second wave of interest rate hikes may only push the CPI to around 4%...

Don't forget that the Federal Reserve is fighting inflation in a down-to-earth manner, but the entire Congress and the Biden team are sabotaging every day, all in the direction of pushing up inflation.

Then as long as the Federal Reserve loosens its hands, the CPI will not fly behind it?

When the CPI takes off, politicians continue to act and fight inflation. However, at this time, the fundamentals of the real economy are worse, and it is more difficult to fight inflation.

Ladies and gentlemen, isn't this the version of the global super-stagflation from 1966 to 1982?!

Looking at the short-term anti-inflation cycle, everyone thinks that the Federal Reserve is awesome, the Federal Reserve is really doing things, and the US economy has not gone wrong.

However, if you consider our analysis above, what does it mean for us if the CPI's bottom pivot continues to rise?

You can yell at every rate hike cycle, no stagflation, no stagflation, and you can say that this is not a global economic crisis.

However, when we look at the events that have taken place in the entire timeline, we are not only already in the midst of a global real economic crisis, but we do not see any possibility of exiting it at all.

If the CPI cannot be suppressed at around 3%, then the United States is now obviously stagflationary, and there is no need to doubt it.

At present, the US government is also using debt to push up the nominal income of enterprises and residents, while using hidden debt to "hide" the inflation of the whole country. As long as there is a big moth in the financial marekt, the income is slapped and the hidden inflation is released, who can bear it?

This truth, with the wisdom of the American elite, does not understand? impossible!

Therefore, they now sing against China every day, as if a bad China means a good America.

Essentially, by deflecting contradictions, the votes of American voters can be harvested cheaply.

As for the form of stagflation in the next few years, then let the later people deal with it.

Interest rate cuts are not far away, and a new round of stagflation is not far away.