The U.S. election campaign is approaching, the Federal Reserve is in line to cut interest rates ahead of schedule, and a soft landing for the economy is the truth
U.S. interest rate cuts start early?
According to Caixin's January 5** road, the Fed swap has reassessed the probability of a rate cut by the Fed in March, and is currently betting on a 70% probability of a rate cut in March.
This took everyone by surprise, and in fact, since the end of 2023, Fed Chairman Jerome Powell has given everyone an amazing face.
On December 1, Powell also promised the public that he would adopt a hawkish policy, saying"It's too early to guess when easing will begin"。
As a result, it wasn't until the Dec. 13 monetary policy meeting that Powell's attitude began a 180-degree shift, even stating"Discussions have already begun on the issue of interest rate cuts"。
In less than half a month, Powell went from being a hawk to a **, and most of the economic data during this period was favorable for continuing to raise interest rates, so what happened in the end?
The current analysis shows that in addition to the Fed's confirmation that it has completed its anti-inflation mission, the Fed, which has always been known for its fairness and impartiality, is likely to be subject to political pressure from Biden**.
The dispute over the United States is on the verge of breaking out, and the Fed is forced to take sides, and the future is"Soft landing"Or is a bigger crisis brewing?
Nothing new under the sun.
Still, it may seem unusual, but not surprising, that the Fed has been forced to take sides.
Like Powell today, back in the 70s, Powell's predecessor, fellow Fed Chairman Burns, faced a similar choice: on the one hand, inflation seemed to be under control, and on the other hand, pressure from the White House
In 1970, Burns became chairman of the Federal Reserve, and in order to control the high inflation rate in the United States, he raised the policy rate significantly between 1972 and 1974, and it was not until 1975 that the inflation rate in the United States increased from 125% to 56%。
Inflation control was successful, everything was going according to plan, so at the beginning of 1976, the Fed considered the task of fighting inflation complete.
Most importantly, in 1976 America**, the most important task for both parties was to canvass votes.
According to former Fed Chairman Ben Bernan in his book, Burns was Nixon's economic adviser during 1968**, and Nixon was elected twice after his election to appoint Burns as Fed chairman.
As a result, Nixon needed to maintain accommodative monetary policy to improve performance, and Burns readily agreed.
As a result, after Carter took office in 1976, Burns lowered interest rates and inflation returned, peaking at 145%, wreaking havoc on the U.S. economy.
That's why Carter is considered the most in American history"Failed"Target**.
Think about it, now Powell"Face"This scene, is it familiar?
The question that arises here is: if policy is loosened prematurely, will a similar situation arise and repeat the mistakes of disaster?
Scratch someone's back. For the current Biden**, as this year** approaches, winning the support of voters is clearly a top priority.
If the Fed can be pressured to cut interest rates as soon as possible, it can boost the economy through loose monetary policy, and then whiten the actual situation of the US economy and solve a series of current problems, such as raising employment, stimulating consumption, and encouraging corporate production.
Once the U.S. economy gets a short-term stimulus, it stands to reason that the public will be more willing to vote for Biden, which is already 81 years old, for re-election.
The reason is very simple, the economy continues to improve, which proves that Biden has made remarkable achievements"Biden Economy"The effect is significant, and it is easier for Biden to get everyone's support.
Of course, Powell led the Fed"Change face", Biden**"Appearance fee"Presumably a knot.
So Biden also wants to return the favor to Powell: if you help me get re-elected, then I will support your re-election as chairman of the Federal Reserve and put on a show"Good show"。
Here one may ask: wasn't Powell appointed by Trump after he took office?How is Powell getting so close to Biden now?
In fact, since Trump always tends to interfere in the Fed's decision-making, the relationship between Powell and Trump is not friendly.
In addition, all four Republican candidates in 2023 have pledged to oust Powell as soon as they are elected to the United States, and even said that they will reform the Fed and increase their influence on the Fed.
So, from Powell's point of view, he clearly doesn't want to"Unemployment", for the Democrats, close to reasonable.
Is a soft landing for the economy a lie?
Now that Powell has stepped back behind Biden and is ready to cut interest rates ahead of schedule, is it possible to achieve a soft landing for the U.S. economy and at the same time help Biden be re-elected?
The answer is probably no, and it's hard to say whether that scene in 1976 will be repeated.
Powell emphasized"The Fed has already begun to discuss the timing of interest rate cuts"In November, the US CPI data fell to 31%, just one step away from the 2% target.
At the same time, Powell also pointed out that the ** side has basically returned to the pre-pandemic level, and the US economy is likely to have a soft landing.
But people are not buying Powell's remarks, with Zerohedge, a well-known financial blogger, arguing that if Powell repeats the mistakes of the past, big inflation will return in 2025.
In addition, several Feds have dissenting opinions, such as New York Fed President Williams, and several Feds have warned that the Fed needs to see more progress on inflation before considering rate cuts.
Finally, former Fed Chairman Dudley points out more directly in his article that Powell is like an indecisive Burns when it comes to fighting inflation.
Therefore, even an early rate cut may not be good news for the US economy, as the bad days of the last century when inflation was too sticky are still fresh in people's minds.
Written at the end: on the one hand, the coming United States**, Biden** is under constant pressure, and on the other hand, there is great uncertainty in terms of inflation, and now the Fed and Powell are faced with a dilemma.