From the "Beige Book" to the Federal Reserve: Can Cutting Interest Rates to Rescue the Market Break the Economic Predicament?

Recently, the latest issue of the "Beige Book" released by the Federal Reserve was like a pebble thrown into a calm lake, causing ripples in the global financial market. This report not only reveals the complex situation currently faced by the US economy, but also triggers intense speculation in the market about the future direction of the Federal Reserve's monetary policy. Under the intertwined influence of weak consumer spending, a weakening labor market and the impact of artificial intelligence technology, the possibility of the Federal Reserve cutting interest rates to rescue the market is rising sharply, and the potential impact of this series of changes on the global economic landscape.

Judging from the content disclosed in the Beige Book, the US economy is entering a delicate period of stagnation. As an important engine of economic growth, the further decline of consumer spending undoubtedly casts a shadow over the economic outlook. Especially against the backdrop of the long-term "shutdown" of the federal government, consumer confidence has been undermined and decision-making has become more cautious, which has directly led to weak sales data in industries such as retail and catering. The weakness in consumer spending not only weakens the support of domestic demand for the economy, but may also trigger a series of chain reactions, such as inventory overstock and production slowdown in enterprises, thereby dragging down overall economic growth.

The changes in the labor market should not be ignored either. The report indicates that about half of the jurisdictions have observed a weakening in labor demand. Enterprises are more inclined to control the number of employees through measures such as hiring freezes, only replacement hiring, and natural attrition rather than direct layoffs. This phenomenon reflects the cautious attitude of enterprises in the face of economic uncertainties and also indicates that the labor market may be undergoing a structural adjustment. More strikingly, a few enterprises have begun to use artificial intelligence technology to replace entry-level positions or to curb new recruitment by enhancing the productivity of existing employees. If this trend continues to develop, it will pose a severe challenge to the employment prospects of low-skilled workers and may also exacerbate the inequality in social income distribution.

Under the dual pressure of weak consumer spending and a weakening labor market, market expectations for the Federal Reserve to cut interest rates have risen sharply. According to CME's "FedWatch" tool, as of 6:30 a.m. Beijing time on November 27th, the probability of the Federal Reserve cutting interest rates by 25 basis points in December has soared to 85%, while the probability of keeping rates unchanged has dropped to 15%. This expectation stands in sharp contrast to a week ago, when the market's probability of a rate cut in December was only 30.1%. Authoritative financial institutions such as jpmorgan Chase have also promptly adjusted their judgment on the Federal Reserve's monetary policy, believing that the recent remarks by several heavyweight officials in support of interest rate cuts have prompted them to reassess the situation.

However, the Federal Reserve's interest rate cut to rescue the market is not a panacea. Although interest rate cuts can lower the financing costs for enterprises, stimulate investment and consumption, and thereby boost the economy to a certain extent, their side effects should not be ignored. Firstly, interest rate cuts may lead to the depreciation of the US dollar, which in turn can trigger changes in global capital flows, exerting pressure on emerging market countries to experience capital outflows and currency depreciation. Secondly, a long-term low-interest-rate environment may breed asset bubbles and increase the vulnerability of the financial system. In addition, interest rate cuts may also weaken the policy space of the Federal Reserve in dealing with an overheated economy or inflationary pressure in the future.

More crucially, it remains unknown whether the interest rate cut can fundamentally solve the structural problems facing the US economy. Weak consumer spending and a weakening labor market reflect deep-seated economic structural imbalances and insufficient innovation capabilities. Relying solely on monetary policy stimulus may only temporarily alleviate the symptoms but cannot cure the root cause. Therefore, while the Federal Reserve is considering cutting interest rates, it should pay more attention to how to promote economic structural adjustment and enhance total factor productivity to achieve sustainable economic growth.

To sum up, although the possibility of the Federal Reserve cutting interest rates to rescue the market is on the rise, both its effectiveness and potential risks cannot be ignored. In today's increasingly integrated global economy, any adjustment in a country's monetary policy may have a profound impact on the global market. Therefore, when making decisions, the Federal Reserve should fully consider the overall interests of the global economy, avoid unilateralism and protectionist tendencies, and jointly maintain the stability and prosperity of the global financial market.