On Wednesday, March 20, Eastern time, the Federal Reserve announced after the FOMC meeting of its Monetary Policy Committee that the target range for the federal funds rate remained at 5.25% to 5.50%.
This is also the first time that the Fed has kept this policy rate at a high level in more than two decades since raising interest rates in July last year. A total of 15 of the 19 Fed officials who provided interest rate forecasts expect rates to fall below 5.0% this year. Among them, five people expect interest rates to be 4.75% to 5.0%, nine people are expected to be 4.50% to 4.75%, and one person is expected to be 4.25% to 4.50%, estimated at 25 basis points per rate cut, 5 people are expected to cut interest rates twice this year, 9 people have cut interest rates three times, and 1 person has cut interest rates four times.
If the interest rate is cut twice, it may be possible to start in the second half of the year, and the interest rate cut three times, all in the second half of the year, I am afraid it is not appropriate, and if the interest rate is cut four times, then the interest rate cut will be started at least in May.
However, in less than two months, the situation has changed dramatically, and Fed officials are becoming more and more cautious and overwhelmed when it comes to cutting interest rates. New York Fed President Williams, the Fed's third-in-command, said in his speech that the Fed is not really discussing interest rate cuts at the moment, and interest rate cuts are not a topic that the Fed is currently discussing. Even the dovish president of the Atlanta Fed has come out and said that he only expects to cut rates twice next year. The implication is that a rate cut this year is no longer possible.
As for why it is unlikely that interest rates will be cut this year, US Federal Reserve Board member Michelle Bowman made it very clear, she said on the 10th that the US inflation data in the past few months have been disappointing, and it will take a long time to be sure that the inflation rate will return to the target track set by the Federal Reserve, and achieving the inflation target is a prerequisite for the Fed to cut interest rates. She believes that the federal funds rate will remain at its current level for longer, and for the time being, the Fed will not cut rates this year.
The Federal Reserve's interest rate cut, which has been hyped up vigorously and vigorously, is suddenly about to die down, which really makes the outside world, especially investors, feel helpless. As everyone knows, since the beginning of this year, the market has been repeatedly impacted and affected by the news that the Federal Reserve is going to cut interest rates, investors are also nervously waiting for the Federal Reserve to cut interest rates, and the central banks of relevant countries are also responding to the Fed's possible interest rate cut policy through policy adjustments. In the United States, the Biden administration is also using all kinds of flowery rhetoric to embellish how the government acts, how the employment rate is raised, and how good the effect of curbing inflation is. Therefore, the monetary policy shift is a sure thing, and it can play a very important role in promoting the economy immediately.
The actual result is that this year's interest rate cut will be disappointed, the stimulus effect of interest rate cuts on the economy will also be disappointed, and the Biden administration's hopes of using policies to boost the economy to add weight to the presidential election will also be disappointed, which will indeed embarrass the US government, and the Fed will become a rat in the bellows. Therefore, in the coming period, the Fed will definitely have a fierce debate about whether to cut interest rates this year, and the hawks and doves will stand on their own sides and engage in fierce confrontation.
At present, the Fed, whether to cut interest rates or not, will have very good reasons and can get a lot of supporters. The economy has not recovered in accordance with the targets set by the Government, and inflation has not been brought under control as expected. An inflation rate of 2% is a target acceptable to most Fed officials, and as long as this target is not reached, the force to prevent interest rate cuts will be stronger, making it difficult for the forces supporting interest rate cuts to break through the forces that block them. Even if the interest rate cut policy is introduced, it will seem very reluctant, and it will even change again in the change of inflation. And according to the current way the Fed operates, it is unlikely that it will cut interest rates first and then raise interest rates. Therefore, the probability of a rate cut this year is becoming more and more hopeless amid the instability of inflation.
If no interest rate cut policy is introduced, the impact on the economy can be imagined. The impact of high interest rates for a long time on enterprises, especially for corporate innovation, is very obvious. The key point for why the U.S. government uses almost barbaric means to suppress and sanction companies in other countries, and even those of its allies, is that the competitiveness of U.S. companies has declined to a certain extent since the entry into high interest rates. In order to protect the interests of domestic enterprises in the United States, the U.S. government has used trade protection measures to protect the interests of domestic enterprises. The introduction of the chip bill, to a large extent, is also a very obvious means of trade protection. As analyzed by the American media, China's electric vehicles rely entirely on technology and cost to obtain market competitiveness, why attribute such competitiveness to subsidies from the Chinese government, to China's overcapacity? Therefore, from the obvious differences between the Fed on the issue of interest rate cuts, many clues can also be seen. When the Fed will be able to cut interest rates, I am afraid that we can only exchange time for space.