Why is it difficult to open the Federal Reserve's interest rate cut window?

On the global economic chessboard, every move of the Federal Reserve is highly anticipated, and the opening of the interest rate cut window affects every nerve in the financial market. Currently, despite the slowdown in economic growth and calls for interest rate cuts from the market, the Federal Reserve's window for interest rate cuts has remained tightly closed, with many complex and intertwined reasons behind it.

The level of inflation is undoubtedly a key factor for the Federal Reserve to consider whether to cut interest rates. At present, although inflation in the United States has fallen from its previous high, the core inflation rate still stubbornly hovers above the policy target of 2%, showing strong stickiness. The formation of this situation is closely related to the global supply chain restructuring promoted by the United States. For the sake of so-called "supply chain security", the United States has forcibly removed the industrial chain from its original efficient and low-cost layout, disrupting the pace of global division of labor and cooperation. In the process of searching for new suppliers and rebuilding the supply chain, enterprises face a significant increase in costs, which are ultimately passed on to consumers through commodity prices, pushing up prices. For example, some American manufacturing companies that rely on imported parts from Asia have experienced a surge in transportation and adaptation costs during the process of supply chain restructuring, leading to an increase in product prices.

On the other hand, domestic service industry prices in the United States continue to rise. With the adjustment of economic structure, the proportion of the service industry in the national economy continues to increase, and the fluctuation of service industry prices has an increasingly significant impact on inflation. From rent, healthcare to catering services, prices are steadily rising. The Federal Reserve is well aware that if it rashly cuts interest rates at this time, the large amount of liquidity released may become the "fuel" for inflation rebound, offsetting the huge efforts made to fight inflation in the early stage.

Under the continuous pressure of the new US government, the Federal Reserve's insistence on suspending interest rate cuts has a deep consideration for maintaining its "independence" image and market credibility. In recent years, the decision-making authority of the Federal Reserve has suffered multiple shocks. Misjudging inflation has led to aggressive interest rate hikes, causing soaring financing costs for businesses, and many small and medium-sized enterprises are facing survival difficulties; The policy fluctuations in response to the economic slowdown have left the market at a loss and severely undermined investor confidence. Nowadays, facing the public outcry and pressure from the new US government to cut interest rates to support economic policies, the Federal Reserve is extremely cautious about any policy adjustments that may be seen as a "political compromise".

Once the Federal Reserve cuts interest rates at this time, it is easy for the outside world to interpret it as yielding to political pressure, which will greatly damage the market's trust in the central bank's "independence". In the analysis of many institutions, the "independence" of the Federal Reserve is seen as the key to maintaining the US dollar system. Once investors suspect that monetary policy has become a political tool, the safe haven nature of US bonds and the reserve currency status of the US dollar will be shaken. International investors may reduce their holdings of US Treasury bonds and seek other more stable investment targets, which will lead to an increase in US Treasury yields and a significant increase in financing costs for the US government; At the same time, the share of the US dollar in the international payment, settlement, and reserve system may also decline, which will have a profound negative impact on the dominant position of the United States in the global economy.

The depreciation of the US dollar may also trigger the risk of competitive devaluation of global currencies. In order to maintain the competitiveness of their own currencies, other countries may follow the example of the United States and adopt monetary easing policies, forming a situation of "competitive devaluation". The volatility of global exchange rates will increase, and the international trade and investment environment will become more unstable. Emerging market countries are particularly vulnerable to shocks, as their external debt burden may increase due to currency depreciation, causing severe fluctuations in financial markets and even triggering debt and financial crises. Therefore, when considering interest rate cuts, the Federal Reserve must weigh the impact on global financial stability, which further limits its room for interest rate cuts.

The difficulty in opening the window for the Federal Reserve to cut interest rates is the result of a combination of factors such as inflationary pressures, economic data uncertainty, political and reputational considerations, and global financial stability constraints. This dilemma also highlights the difficulty of the Federal Reserve's monetary policy adjustment in the current complex economic situation. Every decision it makes requires finding a subtle balance between many conflicting goals, and the grasp of this balance not only concerns the future direction of the US economy, but also profoundly affects the global economic landscape.