The Fed's decision caused global financial market turmoil: The hidden worries behind the soundness

Recently, Fed Chairman Powell's speech directly messed up the global financial market. He made it clear that the Fed was in no hurry to cut rates and intended to do so in two separate cuts totaling 50 basis points before the end of the year. This decision not only left the hearts of global investors hanging in the air, but also triggered a wide discussion and deep reflection on the market's policy direction of the Federal Reserve.

As one of the world's central banks, the Fed's decisions have always attracted much attention. Powell's speech came against a complex background and with a variety of motives. On the one hand, the high inflation rate in the United States has become a real problem that the Fed has to face. In order to control inflation, the Fed needs to take a cautious approach to avoid overly loose policy that will cause inflation to worsen. On the other hand, slowing economic growth has put the Fed under enormous pressure. How to find a balance between controlling inflation and stimulating economic growth has become the central conundrum of the Fed's decision-making.

The Fed's decision triggered a broad market reaction. The Fed was widely expected to cut interest rates twice this year, and even three times. However, Powell's speech shattered that expectation and caught the market off guard. This deviation of expectations not only led to sharp fluctuations in the financial market, but also caused many investors to fall into confusion and confusion.

The deviation between market expectations and the actual situation exposes the fragility and uncertainty of the market. In the process of pursuing the maximization of interests, investors often predict and judge the direction of policies. However, due to the existence of information asymmetry and cognitive bias, these predictions and judgments often have large errors. When actual policies do not match expectations, markets react violently, causing investor confidence to erode and financial markets to wobble.

Inflation is one of the biggest challenges facing the Fed today. As the global economy recovers and demand increases, inflationary pressures are rising. To control inflation, the Fed needs to tighten monetary policy, raising interest rates and reducing the money supply. However, such policies tend to have a depressing effect on economic growth, leading to a slowdown or even recession. As a result, the Fed needs to keep inflation under control while also keeping the economy growing, which undoubtedly adds to the complexity of decision-making.

Economic growth is another important goal of the Fed. However, the current US economic growth faces many difficulties. On the one hand, problems such as population aging and labor shortage have led to a decline in potential growth rate. On the other hand, factors such as trade disputes and geopolitical risks also pose threats to economic growth. In order to stimulate economic growth, the Federal Reserve needs to adopt an easy monetary policy, lowering interest rates and increasing the money supply. However, such policies tend to exacerbate inflationary pressures and lead to runaway inflation. Therefore, the Fed needs to control inflation while stimulating economic growth, which is also a complicated balancing act.

Although the Fed's decision indicates that it is not in a hurry to cut interest rates, the plan to cut interest rates by a total of 50 basis points in two installations before the end of the year still triggered widespread debate in the market. Is this policy adjustment appropriate? Can it achieve the desired effect? These are all questions worth pondering.

First, the timing and intensity of policy adjustments need to be accurately grasped. Adjusting too early or too late can have adverse effects on the economy. Premature adjustment could stifle economic growth and lead to a recession; Too late an adjustment could exacerbate inflationary pressures and lead to runaway inflation. Therefore, the Fed needs to accurately judge the changes in the economic situation and adjust the direction and intensity of policy in a timely manner.

Second, policy adjustments need to be coordinated with other macroeconomic policies. Monetary policy is only a part of macroeconomic policy, and it needs to cooperate with fiscal policy and industrial policy to play a role together. However, the current political environment in the United States is complex and changeable, and policy coordination is difficult. How to coordinate various macroeconomic policies and ensure the maximum effect of policies is an important issue that the Federal Reserve needs to face.

The lack of transparency in the Fed's policymaking process makes it difficult for markets to accurately predict the direction of policy. This opacity not only increases the uncertainty of the market, but also makes investors feel confused. In order to improve the transparency of policy making, the Federal Reserve needs to strengthen communication and exchange with the market, timely release the process and basis of policy making, and enhance market confidence and stability.

The Fed's policy adjustments lack the flexibility to respond to complex and changing economic conditions. In the context of rising inflation pressures and slowing economic growth, the Federal Reserve needs to adopt a more flexible and diverse policy approach to address the challenges. However, the current policy adjustment of the Federal Reserve mainly relies on the adjustment of interest rates and the use of monetary policy tools, and lacks other effective policy means to deal with economic problems under different situations. Therefore, the Fed needs to expand the scope of policy tools to improve the flexibility and effectiveness of policy adjustment.

The effectiveness of the Fed's policies is difficult to assess, leading to a lack of scientific evidence for policymaking. Due to the complexity and uncertainty of the economic system, policy effects are often difficult to accurately predict and evaluate. Therefore, the Federal Reserve needs to strengthen the monitoring and evaluation of policy effects, establish a scientific and effective evaluation system and methods, and provide scientific basis and reference for policy making.

To respond to economic problems in different scenarios, the Fed will need to broaden its range of policy tools. In addition to traditional interest rate adjustments and the use of monetary policy tools, other effective policy tools can be considered to address the challenge. For example, fiscal policy can be used to stimulate economic growth; The economic structure can be optimized through the adjustment of industrial policy. The efficiency and competitiveness of financial market can be improved through the promotion of financial innovation.

The Fed's decision has triggered widespread attention and deep reflection in global financial markets. In the face of the complex and changing economic situation and challenges, the Fed needs to remain calm and rational, and strengthen the transparency and scientific nature of policy formulation and implementation. At the same time, it is also necessary to strengthen communication and coordination with other macroeconomic policy-making bodies to form a joint response to challenges. Only in this way can we ensure the stability and healthy development of the global financial market.