Global economic turbulence and the policy dilemma of the Federal Reserve

Recently, the US stock market has plummeted, consumer and business confidence indicators have dropped significantly, expectations of slowing economic growth have intensified, and both unemployment and inflation rates have risen. These signs reflect that the US economy is facing severe challenges. At the same time, the government's repeated adjustments in tariff policies have intensified market uncertainty, making companies increasingly cautious in investment and recruitment. The repeated mention of "uncertainty" by the Federal Reserve Chairman at the press conference reflects the concerns of policy makers about the current situation.

1、 Behind the stock market crash: the collapse of market confidence

The recent sharp decline in the US stock market indicates investors' unease about future economic trends. The stock market is often seen as a barometer of the economy, and a sharp decline in the stock market often reflects market concerns about growth prospects. Currently, the risk of a global economic slowdown is increasing, especially as the driving force behind US economic growth gradually weakens, causing great anxiety among investors.

A key factor causing severe fluctuations in the stock market is policy uncertainty. The Trump administration's trade policy is wavering, sometimes delaying tariffs and sometimes resuming plans, making it difficult for businesses to make long-term decisions. In addition, the Federal Reserve's stance on monetary policy has also affected market sentiment. Although the Federal Reserve has previously cut interest rates, its policy options are shrinking in the face of the dual challenges of slowing economic growth and rising inflation.

2、 Deterioration of economic fundamentals: declining confidence, slowing growth

The decline in consumer confidence and business confidence means that economic activity may further slow down. The decline in consumer confidence may lead to a decrease in spending, which in turn may affect overall economic growth. The decline in business confidence usually leads to a decrease in recruitment and investment, which may exacerbate the trend of rising unemployment rates.

Economists generally predict that US economic growth will slow down in the coming quarters. In 2024, the GDP growth rate in the United States is already lower than in previous years, and in the current economic environment, further slowdown is almost inevitable. The Federal Reserve has also acknowledged this trend, which means that monetary policy may need further adjustment. However, the challenge facing the Federal Reserve is that while interest rate cuts can stimulate the economy, they may exacerbate inflationary pressures.

3、 The policy dilemma of the Federal Reserve: interest rate cuts or inflation resistance?

The current economic situation has put the Federal Reserve in a dilemma. On the one hand, a slowdown in economic growth and a decline in the stock market may require further interest rate cuts to boost market confidence and investment. On the other hand, an increase in inflation rate means that excessively loose monetary policy may exacerbate the problem of rising prices. This requires the Federal Reserve to be extremely cautious when formulating policies.

In the past few years, the Federal Reserve's policy has mainly focused on "preventive interest rate cuts", hoping to provide support before the economy slows down. However, as inflationary pressures increase, future policy space may be further limited. If the Federal Reserve chooses to further cut interest rates, it may have an impact on the US dollar exchange rate, thereby affecting global capital flows and trade patterns.

4、 The chain reaction between policy uncertainty and global markets

The Trump administration's inconsistent tariff policies have exacerbated uncertainty in the global market. Enterprises need a stable policy environment when formulating investment and production plans, and the repeated adjustments of tariff policies increase the operating costs of enterprises, making it difficult to predict the supply chain. Even experts who support Trump's trade goals are concerned about this uncertainty.

The global economy has become deeply interconnected, and policy fluctuations in the United States directly affect other countries. For example, a sharp drop in the US stock market could trigger a chain reaction in global stock markets, and policy adjustments by the Federal Reserve could also affect global capital flows. Especially for countries that rely on the US market, a slowdown in the US economy may have a greater impact.

5、 Future Outlook: Policy Coordination and Confidence Restoration

Faced with the current economic challenges, the US government and the Federal Reserve need to adopt clearer and more coordinated policies. The government should reduce unnecessary policy adjustments and provide stable expectations for the market, rather than constantly creating new uncertainties. At the same time, the Federal Reserve needs to find a balance between controlling inflation and stimulating the economy, avoiding excessive policy tilt.

In the future, whether the US economy can avoid a more severe recession largely depends on how policy makers respond to current challenges. If policies can stabilize market confidence and improve the expectations of businesses and consumers, the economy may gradually recover. But if uncertainty continues to increase, there may be even more severe economic crises in the future.