On May 4th, the Federal Reserve decided to raise the target range for the federal funds rate by 25 basis points, adjusting it to between 5% and 5.25%.
Following the Fed's expected 25 basis point rate hike, Fed Chairman Powell also conveyed a series of important messages in his subsequent remarks.
He explicitly stated that the United States will end further rate hikes and is not considering the possibility of rate cuts for the time being.
At the same time, when discussing the U.S. debt crisis, Powell unusually shifted the blame to other factors, absolving the Fed from responsibility for the crisis and viewing it as part of a broader issue.
Faced with the imminent default on maturing U.S. debt, the choice to continue raising rates and whether to start planning for money printing in advance is a question.
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Under the U.S. debt crisis, where the U.S. government will go is also a key issue that each of us should continue to pay attention to.
The U.S. rate hike cycle refers to a series of decisions by the Fed to adjust the federal benchmark interest rate.
When the U.S. economy is running well and inflationary pressures rise, the Fed will take measures to gradually raise interest rates to curb economic overheating and inflationary pressures, which is known as the rate hike cycle.
By raising short-term interest rates, such as the federal benchmark rate, the Fed can influence borrowing costs and thus have a certain impact on lending, investment, and consumption behavior.
In this FOMC meeting, the Fed also revealed relevant information, indicating that after this rate hike, there will be no further rate increases for the time being.
This stance reflects an assessment of the overall state of the U.S. economy and a focus on inflationary pressures, which also means that the rate hike cycle may be ending, and the Fed's rates will remain high, but the timing of rate cuts is still unclear.
It can be said that the Fed's rate hike cycle has reached its peak, and currently, it is more about maintaining interest rates at a higher level.
However, the end of the rate hike cycle means that the trend of rising interest rates is reversed, which will have multiple impacts on the economy.
Affected by this Fed rate hike and a series of subsequent remarks by Powell, the global financial market may be ushering in a period of volatility.
As the U.S. rate hike cycle comes to an end, the global financial market will also face a certain degree of turmoil.
As one of the world's largest economies and financial centers, changes in U.S. interest rate policy will have a profound impact on investors.
The end of the rate hike cycle will prompt investors to reassess the relationship between risk and return.
They will re-examine their investment portfolios and adjust capital allocation to adapt to the new interest rate environment.
This reassessment could lead to adjustments in capital flows, thereby causing intense fluctuations in the global stock market, foreign exchange market, and bond market.
The stock market may face sharp fluctuations and adjustments in prices.
Investors will reassess the prospects of various industries and companies and adjust stock prices accordingly.
Market sentiment may be affected, thereby affecting the performance of stock market indices.
On May 4th, the German DAX 30 index closed at 15,734.24, down 0.51% from the previous trading day.
This decline may reflect the impact of market expectations for the Fed's rate hike.
Generally speaking, expectations of rate hikes may lead to a decline in the stock market, as higher interest rates may increase corporate borrowing costs and exert certain pressure on economic growth.
Data shows that the Nikkei 225 index has also experienced some fluctuations in recent trading days.
As of May 19, 2023, the Nikkei 225 index closed at 30,808.35 points, up 0.77% from the previous trading day.
In the previous few trading days, the index has seen both rises and declines, but overall, it has shown a relatively stable trend.
However, the U.S. dollar index futures are different.
As of May 19, 2023, the U.S. dollar index futures closed at 103.079, down 0.36% from the previous trading day.
In the previous few trading days, the U.S. dollar index futures have seen both rises and declines, overall showing a less stable fluctuation.
The U.S. dollar index futures are an indicator that measures the exchange rate trend of the U.S. dollar against a basket of other major currencies, so it also reflects the economic condition of the United States to some extent.
When the Fed's rate hike is about to end, it may have a certain impact on the U.S. dollar index.
Generally speaking, expectations of rate hikes may lead to an increase in investor buying of the U.S. dollar, thereby having a positive impact on the U.S. dollar index.
However, market reactions are complex, and we also need to consider other factors comprehensively.
In summary, the end of the Fed's rate hike cycle may have a certain impact on the stock market, such as generating positive market sentiment, market expectations that the end of the rate hike cycle may trigger investor optimism about the stock market; or a rebound in the stock market, the stock market may experience a positive rebound, especially in industries that benefit from a low-interest-rate environment, such as real estate, consumer goods, and technology sectors; and boosting investor confidence, the end of the rate hike cycle may boost investor confidence and increase capital inflows into the stock market.
In addition, the foreign exchange market will also be affected by the end of the rate hike cycle.
Investors will reassess the prospects of various currencies and adjust their demand for currencies accordingly.
This could lead to sharp fluctuations in exchange rates between different currencies, especially those involving the U.S. dollar.
The bond market is also likely to be affected.
With interest rate changes, there is an inverse relationship between bond prices and yields, and the end of the rate hike cycle may lead to a decline in bond prices and an increase in yields, thereby causing turmoil in the bond market.
It should be noted that the extent of these fluctuations and the factors affecting them are numerous, including but not limited to market expectations, economic fundamentals, and the interconnections of global financial markets.
We should also make more accurate judgments based on various data, and central banks and policymakers in various countries will also take measures to cope with fluctuations in the financial market to maintain financial stability, which is also worth our continued attention.
The end of the U.S. rate hike cycle may also lead to an increase in global borrowing costs.
Banks and financial institutions around the world may be affected, borrowing costs may rise, thereby suppressing consumer and investment demand.
Especially for those countries or companies with debt based on the U.S. dollar, they may need to pay higher interest to repay their debts.
In addition, the end of the rate hike cycle may also lead to a reorientation of capital flows.
Investors may shift funds to other regions or asset classes to seek higher returns or reduce risks.
This could affect the financial markets, exchange rates, and asset prices of various countries around the world.
Moreover, because the U.S. economy has a significant impact on the global economy.
The end of the rate hike cycle may lead to a slowdown in U.S. economic growth, which will also be transmitted to other countries and regions, affecting global economic growth.
Especially those countries with a high degree of trade dependence on the United States may face challenges of reduced exports and economic slowdown.
Combined with the information disclosed at the FOMC meeting, Powell and others have hinted that the Fed will pause rate hikes in June, but whether to end rate hikes is still unclear.
Based on the Fed's recent remarks and market expectations, some observers believe that the Fed may be close to ending the rate hike cycle.
This may be due to factors such as a slowdown in inflationary pressures, a slowdown in economic recovery, and market demand for stable monetary policy.
However, the specific decision depends on the Fed's assessment and forecast of the economic situation.
It should be noted that the stock market and other market reactions to rate hike decisions are complex and may be influenced by a variety of factors and market expectations.
Generally speaking, if the market expects the Fed to end rate hikes soon, it may have a positive impact on related financial markets, as a lower interest rate environment helps to improve corporate profits and investment activities.
However, the specific impact varies with the market environment and other factors, and is influenced by a combination of various factors.
In summary, based on current data and market observations, it can be speculated that the Fed may be close to ending the rate hike cycle, but the specific decision depends on economic data and the Fed's assessment, which also requires our continued attention.
The decision to end the rate hike cycle must be based on a consideration of multiple factors.
First, a slowdown in global economic growth is one of the main reasons.
The weakening growth momentum of major economies, trade tensions, and the intensification of geopolitical risks have brought uncertainty to the global economy.
In this economic context, continuing to raise interest rates may have a negative impact on economic growth, so the possibility of ending the rate hike cycle is very high, as this can better support economic stability and growth.
Second, the current inflation rate in the United States is 4.9%, higher than some other countries and regions.
High inflation rates may cause central banks to worry because excessive inflation can lead to currency devaluation, a decline in purchasing power, and an unstable economic environment.
In this case, central banks may prefer to adopt tight monetary policies, including raising interest rates to curb inflation.
In addition, the uncertainty of trade policy also affects the decision-making.
The escalation of global trade tensions and the uncertainty of negotiations and agreements have had a negative impact on economic growth and market confidence.
Ending the rate hike cycle can provide a certain degree of stability and predictability for the economy to cope with the volatility of trade policies.
Market and investor expectations have also pushed the Fed's decision to end the rate hike cycle to a certain extent.
The market generally expects the Fed to adopt a cautious monetary policy stance, which reflects the market's expectations for the interest rate outlook.
The Fed takes into account market reactions and expectations to avoid excessive shocks to the financial markets and the economy.
At the FMOC meeting, Powell made a series of remarks.
He expressed an open attitude towards pausing rate hikes in June and warned that pressures on the banking industry could spill over into the broader economy.
He emphasized the importance of the inflation target and price stability for a strong economy, but also pointed out the negative impact of tightening credit conditions and uncertainty on economic growth, employment, and inflation.
Some observers believe that Powell's remarks show that he is trying to shift the blame to external factors.
He mentioned the credit tightening and uncertainty caused by the banking crisis, as well as the uncertainty about the future outlook.
This is interpreted as him trying to attribute the responsibility for rate hike decisions to these factors, rather than the Fed's own actions.However, there are divergent views that Powell did not entirely shift the blame to external factors.
In his speech, he emphasized the progress the Federal Reserve has made in tightening monetary policy and stated that the policy stance is now restrictive to economic growth.
He also stressed the observation of more data and future prospects before deciding whether interest rates need to be raised.
This shows that he is weighing various factors and adopting a cautious attitude.
As for Powell's speech, some believe he is passing the buck, shifting responsibility to factors outside the Federal Reserve.
In fact, whether Powell is trying to shift the blame to external factors is a contentious issue.
In my view, it is also a question worth in-depth analysis.
Firstly, Powell clearly emphasized in his speech that U.S. inflation is far above the 2% target and stated that if the fight against inflation fails, it will bring prolonged suffering.
This indicates his concern for inflation risks, implying that he understands and acknowledges the importance of monetary policy in controlling inflation.
Such a statement is hard to interpret as an attempt to shift responsibility to external factors.
However, Powell also mentioned the tightening of credit conditions caused by the banking crisis and its potential negative impact on economic growth, employment, and inflation.
He hinted that these factors might lead to a lower peak interest rate than expected by the Federal Reserve.
Some may interpret this as an attempt to blame banking issues and link the interest rate hike decision to external factors.
But we must also note that Powell mentioned the significant progress the Federal Reserve has made in tightening monetary policy and emphasized the restrictive nature of the policy stance on economic growth.
This means he still recognizes the responsibility and role of the Federal Reserve in the interest rate hike process.
Another noteworthy aspect is Powell's cautious attitude towards the accuracy of economic forecasts in his speech.
He pointed out that quarterly economic forecasts usually face challenges and emphasized the current uncertainties, including credit tightening due to banking stress.
This statement implies his cautious assessment of the economic outlook and indicates that he will rely more on data and the evolution of future prospects when making decisions.
This cautious and flexible attitude does not mean an attempt to shift responsibility to external factors but reflects his understanding of the complexity and challenges of decision-making in the current environment.
However, some still believe that some expressions in Powell's speech might be misinterpreted as an attempt to blame external factors, especially banking issues.
The credit tightening and banking stress he mentioned might be interpreted as an attempt to shift responsibility for interest rate hike decisions.
In addition, some critics believe that Powell appears indecisive in dealing with inflation and interest rate hikes, lacking clear leadership.
However, we must realize that decision-making is a complex and variable process.
In the face of uncertainty and challenges, leaders need to consider various factors comprehensively and make the best decisions.
Powell's speeches and actions show his cautious assessment and flexible response to the current economic environment.
He emphasizes data-driven decision-making and observation of the economic outlook, indicating that he is aware that decisions need to be based on accurate information and full understanding.
Therefore, in this matter, there is no so-called buck-passing issue with Powell; he is merely fulfilling his duties and obligations.
From the end of the interest rate hike cycle to Powell's so-called buck-passing remarks, the information behind it is closely related to the U.S. debt crisis.
As the economy recovers and inflationary pressures increase, the Federal Reserve has to consider tightening monetary policy to control inflation.
However, at this critical moment, the continuous rise in CDS rates shows the market's concern about the risk of U.S. debt default.
Investor confidence begins to decline, and they are increasingly worried that the U.S. government will not be able to fulfill its debt commitments due to debt issues, also sounding the alarm for the U.S. debt crisis.
According to CDS rate data, we can analyze the situation of the U.S. debt crisis.
CDS rates are an indicator of debt default risk.
When CDS rates rise, it means that the market's expectation of debt default increases, indicating that investors' confidence in bonds declines, and they believe the risk of default is increasing.
From the data, there are fluctuations in CDS rates, but the overall trend is upward.
For example, in the last few days, CDS rates fell from 98.01 to 97.8, and there was a slight increase before that.
This indicates that the market's concern about the risk of U.S. debt default is increasing, and investor confidence in U.S. debt is decreasing.
According to calculations by relevant institutions, if the U.S. government defaults, short sellers can profit from the lowest price of long-term U.S. bonds, with a return rate of over 2400%.
This shows that some speculators have started to bet wildly and have gained confidence in the possibility of U.S. debt default.
Overall, the rise in CDS rates indicates that the market's confidence in U.S. debt is declining, and there is concern about the risk of U.S. debt default.
This situation may be closely related to the U.S. debt crisis, and corresponding measures need to be taken to deal with and save the U.S. economy.
At the same time, through the analysis of the U.S. historical outstanding debt, it is not difficult to see that from 2018 to 2022, the total amount of U.S. debt increased from 21.516 trillion U.S. dollars to 30.929 trillion U.S. dollars, showing an increasing trend year by year.
During this period, U.S. debt increased by 9.413 trillion U.S. dollars.
This huge increase shows the scale and accumulation speed of U.S. government debt.
The growth rate of U.S. debt may vary from year to year.
For example, from 2020 to 2021, the debt increased by 1.483 trillion U.S. dollars, with a relatively high growth rate.
From 2021 to 2022, the debt increased by 2.4 trillion U.S. dollars, with a more significant growth rate.
These data indicate that the U.S. debt issue has become increasingly serious in the past few years.
The high scale of U.S. debt poses challenges to the U.S. economy and financial stability and may lead to potential risks, such as pressure on fiscal sustainability and debt repayment capacity.
According to U.S. debt closing data, in the recent period, U.S. debt closing prices have experienced a certain degree of fluctuation, indicating that there is a certain degree of uncertainty and volatility in the market.
Within each trading day, there is also a certain fluctuation in the closing price of U.S. debt.
There is a certain difference between the opening price, the highest price, and the closing price, which shows the market's buying and selling activities, as well as changes in investor demand and risk sentiment for U.S. debt.
The fluctuation and possible decline in U.S. debt closing prices also indicate that investor confidence in U.S. debt has reached a low level.
This may be due to a series of factors, such as economic uncertainty, monetary policy adjustments, and global geopolitical risks.
The decline in investor confidence in U.S. debt may lead to capital outflows from the U.S. debt market, further driving down bond prices and rising yields.
At the same time, the volatility and price decline in the U.S. debt market may attract speculators in the derivatives market.
These speculators may use derivative tools for leveraged trading to pursue profits.
Their influx may exacerbate the instability of the U.S. debt market and further promote price fluctuations.
It is worth further attention that the issue of the debt ceiling of U.S. debt.
If the government cannot raise the debt ceiling or reach a debt limit agreement in time, it may lead to the U.S. government being unable to repay the bonds due.
This may trigger the risk of debt default, causing market panic, and leading to further turmoil in the U.S. debt market.
The vicious cycle may exacerbate market uncertainty and have a wide impact on the economy and financial system.
Faced with the increasingly serious problem of U.S. debt, we urgently need to pay extensive attention and take active action.
The debt crisis is not only a government problem but also relates to everyone's life and future.
At this critical moment, governments, especially the U.S. government, should pay attention and take active measures because it is an important issue concerning the global economic situation.
Addressing the debt ceiling issue: The U.S. government should resolve the debt ceiling issue as soon as possible to avoid the risk of default and restore market confidence in U.S. debt.
They can stabilize market sentiment by formulating debt limit agreements or raising the debt ceiling.
Promoting economic growth and job opportunities: To restore confidence in U.S. debt, the U.S. government can take economic stimulus measures, such as increasing infrastructure investment, supporting innovation and industrial development, and providing fiscal stimulus measures to promote economic growth and create job opportunities.
Strengthening financial supervision and risk management: Strengthening financial supervision and risk management is a key measure to ensure the stability of the financial system and avoid similar crises from happening again.
On this point, the U.S. government should take measures to strengthen the supervisory capacity of regulatory agencies, increase transparency and disclosure requirements, strengthen risk assessment and monitoring, and ensure that financial institutions operate healthily and comply with regulations.
In addition, financial education and investor protection can be strengthened to improve investors' risk awareness and financial literacy.