Before reading this article, please click "Follow" to facilitate discussion and sharing with you, and you can also watch the next wonderful article in time. Thank you very much for your attention!
In the economic sea, every country is like a ship sailing in this vast sea. For the center of this ocean, the Fed is undoubtedly recognized as a "financial giant". Because of its authority and strength, it has played a key role in the global economic navigation.
But just as there is no ship in the sea that will never capsize, the Fed's recent performance has shocked the world, why should such a financial giant also suffer storms?
First, the myth of the Fed's "money printing machine" has been shattered
The Federal Reserve, whose name was once a financial symbol in the hearts of countless people, is almost closely associated with the label of "unlimited money printing machine". In the perception of many people, the Fed seems to hold the lifeblood of the economy, as long as it wants, it can inject a steady stream of vitality into the global economy by issuing money.
This belief has been proven for a long time, and the Fed's policies have not only stabilized the domestic economy time and again, but also provided strong support for global economic growth. However, the figures for the first half of 2023 are alarming. The Fed's losses in the first half of the year were close to $60 billion, a figure unprecedented in its nearly thirteen-year history.
This is clearly a huge blow to an institution that has historically been seen as "invulnerable". So why did such a financial giant suffer such a storm? We need to understand that monetary policy is not omnipotent.
Although the money supply is a short-term economic stimulus, long-term over-issuance of money may lead to currency depreciation, which can lead to a series of economic problems, such as inflation, asset price bubbles, etc.
In the past, when the Fed chose to "release water and raise fish" monetary policy in response to the financial crisis, a large amount of money was injected into the market, which did achieve good results in the short term, but it also laid the groundwork for long-term risks.
The Fed's position in the global financial system means that every step of its decision-making has profound implications for other countries. When other countries' economies are hit, they will also adopt corresponding strategies to fight them, which can lead to currency wars and plunge countries into a vicious competition.
Changes in the global economic environment, especially in major countries closely related to the US economy, such as China and the European Union, whose economic strategies and trends will have a profound impact on the Fed's decision-making. For example, if the economies of these countries become unstable, they may reduce their purchases of U.S. Treasuries, which would be a huge blow to the Fed, which relies on Treasury issuance for funding.
While the Fed has powerful monetary policy tools, it is not invincible. In the global economic environment, the Fed's strategy needs to be more cautious and forward-looking, otherwise, even such a financial giant may encounter storms.
Second, from losses to layoffs, the alarm bell of the economy has sounded
In recent years, the Fed has been seen globally as a stabilizer of the economy. Of course, its decisions and strategies have repeatedly boosted economic growth and mitigated financial risks. However, what happened in the first half of 2023 raises questions about the stability of this financial giant.
The first is its nearly $60 billion loss. This huge number not only exceeded market expectations, but also unprecedented in its nearly thirteen-year history. Behind such losses lies a stark truth: the Fed may have lost its ability to intervene precisely in markets as it once had.
This failure may stem from a variety of reasons: from the complex macroeconomic interactions of the globalization process, to changes in the domestic economic structure, and the industrial evolution brought about by scientific and technological progress in recent years.
More worryingly, in order to hedge this financial pressure, the Fed had to choose the first large-scale layoff in 13 years in the first half of the year. This kind of move is not just a simple financial strategy.
It represents the Fed's extremely pessimistic outlook for future markets. Historically, every time the Fed has taken such tightening measures, it has often signaled that the economy may come under more pressure.
The layoffs not only affected Fed employees, but also sent a strong signal to the outside world that the global economy may be entering a new trough cycle. For investors, this is a clear one
The risk warning, and for governments and financial institutions, is also a wake-up call to prepare for the storm that may come.
So why is the Fed in such a difficult situation? On the one hand, in recent years, various uncertainties in the global economy have increased. From the intensification of trade wars and changes in international politics to the impact of global health crises such as the pandemic, these have made financial markets more complex and unpredictable.
Against this backdrop, even a super financial institution like the Federal Reserve has difficulty adapting to this rapidly changing environment. On the other hand, the rise of emerging market countries has made the Fed no longer have the absolute economic voice of the past.
The economies of these emerging countries are rising rapidly in size and growth, and their economic decisions can have a significant impact on global financial markets. And the Fed may well have begun to lose accurate judgment of the economic dynamics of these countries.
What appears to be separate losses and layoffs is actually an overall economic warning. It sheds light on hidden vulnerabilities and uncertainties in the global economy. For policymakers, investors and ordinary people around the world, a more deliberate and preventive approach is particularly important.
This is a major challenge for the Fed, which needs to re-examine its strategy in such a difficult situation to ensure that it can effectively stabilize the economy and create the conditions for continued global economic growth.
The financial giant ship sways in the wind and waves, but its roots are deep, and it can move forward stably through wind and rain. The challenge facing the Fed now is undoubtedly a low point in its history.
But it also provides an opportunity to re-examine itself and reposition its role in the global economy. As long as it responds properly and returns to its roots, the Fed can still lead the global economy towards a more prosperous future.
What do you think about this?
Welcome to leave a message to participate in the discussion.