The Federal Reserve's latest interest rate decision continues to keep the interest rate within the range of 5.25% to 5.5%, with no signs of rate cuts.
The current inflation rate in the United States is 3.5%, which has risen from 3.2% at the beginning of April, moving further away from the Federal Reserve's target of 2%.
From the data, it appears that not only will the Federal Reserve not cut rates in the near future, but it may also raise rates. In the future, 8% might become a reality.
The most important factor behind everyone's bet that the Federal Reserve will cut rates this year is the fiscal issues in the United States.
Affected by various factors, the U.S. fiscal budget has shown a deficit this year, with revenues lower than last year. What's more concerning is that the amount of U.S. Treasury bonds maturing this year is as high as $7.8 trillion.
Based on the poor state of U.S. finances and the need to issue U.S. Treasury bonds to raise funds, everyone believes that the Federal Reserve will pave the way for U.S. fiscal policy by cutting rates this year.
However, the recent announcement of the U.S. Treasury's bond repurchase plan has broken this logic of rate cuts. From a practical operational perspective, the "debt exchange plan" implemented by the U.S. fiscal policy can resolve the crisis of U.S. Treasury bonds.Since a large portion of U.S. debt is held by major American institutions, the U.S. Treasury can be accepted by purchasing maturing old debts from them and immediately repaying new debts.
With this, the U.S. debt crisis disappears.
Free from the troubles of the debt crisis, the pressure on the U.S. Treasury instantly decreases, and the need to raise funds by issuing a large amount of debt also disappears.
The U.S. Treasury does not need to raise funds by issuing a large amount of debt, and the Federal Reserve's interest rate reduction standard returns to non-farm employment data.
Due to the impact of the COVID-19 pandemic, more than 20 million people in the United States have sequelae, among which millions of people are unable to work normally, leading to a shortage of labor in the United States.
Due to the shortage of labor, American employers are scrambling to hire workers, which makes the non-farm employment rate in the United States very high.
Under the condition of such a good non-farm employment rate, the Federal Reserve is impossible to reduce interest rates.
The non-farm employment rate and inflation are a pair of twins, the higher the non-farm employment rate, the higher the inflation rate is often.The causes of inflation in the United States are actually numerous, including:
1. The massive monetary easing during the pandemic.
2. The rise in international energy prices.
3. The reduction in labor in the United States after the pandemic, leading to increased labor costs.
4. Tariff policies that have raised the prices of goods in the U.S. market.
Under the combined effect of these factors, inflation in the United States has surged. However, the failure of the U.S. inflation rate to decrease after interest rate hikes is related to two other issues.The inflation in the United States seems intractable, likely due to two main reasons:
1. The Federal Reserve's interest rate hikes lead to a massive repatriation of dollars back to the U.S.
The U.S. dollar has long been the international currency, with the U.S. exporting dollars abroad for an extended period. The interest rate hikes by the Federal Reserve have caused a large-scale repatriation of dollars scattered around the world, leading to an overflow of currency within the United States.
2. Welfare distribution policies.
Due to the U.S. government's extensive welfare distribution, Americans have little to worry about, which emboldens them to spend freely, leading to a shortage of goods.
These two factors are the primary reasons why the U.S. struggles to eliminate inflation after the Federal Reserve's interest rate hikes.
Nevertheless, regardless of the situation, the Federal Reserve's decision to raise or lower interest rates is based solely on the U.S. non-farm employment rate data.
In the eyes of the Federal Reserve, as long as the U.S. non-farm employment rate remains high, with no unemployment, no bankruptcies, and no one begging for food, they will not lower interest rates.Considering the significant impact of the COVID-19 pandemic on the American workforce, with a substantial portion of the population losing their ability to work, and in light of the United States' tariff barrier policies that have increased the prices of many imported goods, among other factors, it is challenging for the U.S. non-farm employment rate to decrease in the near term.
Consequently, until these series of factors dissipate, it will be difficult for the Federal Reserve to lower interest rates.