It has been almost a year since the United States pulled interest rates to a high of 5.5%, and the global dollar has returned to the United States, the dollar has appreciated, and the currencies of other countries have depreciated.
1. The United States wants to raise interest rates to 8%?
But the United States does not seem to be so anxious, one moment said that it would cut interest rates, and another time said that it was not in a hurry, anyway, it was contrary to the market's expectations, which made everyone very confused, and whether the Fed cut interest rates or not has become a mystery that major investment institutions around the world are speculating.
JPMorgan Chase, as the world's top investment bank, its chairman and CEO Dimon recently warned the market, saying that U.S. inflation and interest rates may continue to be higher than market expectations, and in the next few years, U.S. interest rates may soar to 8%, which shocked the world.
Dimon's main concern is that geopolitical events such as the Russia-Ukraine conflict, the Palestinian-Israeli conflict, and the political polarization in the United States are likely to pose the biggest risk since World War II. According to Dimon, the market is overly optimistic that the probability of a soft landing for the US economy is between 70% and 80%.
Interestingly, JPMorgan strategists suggested in an investment note that investors could consider buying narrow range call options on the Hong Kong stock index or the FTSE China A50 index to prepare for a potential rally in Chinese equities.
However, Dimon's words also leave plenty of room for JPMorgan Chase to raise interest rates to 8% and cut them to 2%, which means that he believes that US interest rates may rise to 8% or fall to 2%, and they are ready for this anyway.
Is it possible for the United States to raise interest rates to 8 percent? Theoretically speaking, it is not completely impossible, mainly to see whether inflation can be controlled, and if inflation rises again, rising to 4 percent, or even 5 percent, then the Federal Reserve will not be able to sit still, and can only raise interest rates again.
There are many factors, but the biggest one is geopolitics, such as the expansion of the Russia-Ukraine conflict, the expansion of the Palestinian-Israeli conflict, and even the occurrence of larger-scale conflicts in other places.
It's just that Israel is currently about to withdraw its troops from Gaza, and the United States has also begun to let go of peace talks in Ukraine, which shows that the United States does not intend to continue to trap itself in the Russian-Ukrainian conflict and the Palestinian-Israeli conflict, and is ready to withdraw so as not to harm itself.
At present, the global situation seems to be full of crises, but the whole is quite controllable, there will be no three wars, as long as the two largest countries do not end up, it can only be a local conflict, and will not spread to the whole world.
2. Why isn't the United States in a hurry to cut interest rates?
The whole world is waiting for the United States to cut interest rates, but the United States does not seem to be in a hurry, we only see the negative impact of the United States interest rate hikes, the main thing is that the interest cost is too high, which will increase the debt burden and curb the willingness of companies to invest.
Yes, as far as the US federal government is concerned, the 2019 Treasury interest expense budget is $500 billion, but in 2020, due to the reduction of interest rates to zero, the interest expense fell to $345 billion, a sharp decrease from 2019. In 2021, it is still not high, only 352.3 billion US dollars, and interest expenses will increase again when interest rates are raised in March 2022, but it is only 475 billion US dollars, and it will be less than 700 billion US dollars in 2023, although it has increased significantly compared with 2022, but it is only less than 200 billion US dollars higher than in 2019, and the economic volume in 2023 has increased significantly compared with 2019.
Of course, there are, and it is not small, first of all, it is able to control inflation, which is the most direct reason for raising interest rates, the dollar is a global currency, you can buy goods and services around the world, after the interest rate hike, the dollar appreciates, compared with other currencies, then it is naturally cheaper to buy goods from other countries, for example, the RMB has depreciated by 10% compared with the dollar, which also means that spending the same dollar, you can buy the same goods from China will save 10% of the dollar, which is not equivalent to a price reduction? Moreover, the United States itself is the country with the largest trade deficit, and daily necessities are basically imported from other countries, and interest rate hikes will lead to the appreciation of the dollar, and eventually it will also lead to cheaper imports from other countries.
There are also the benefits of employment, from the actual results, the current economic growth of the United States is still very good, the annual rate of GDP in the fourth quarter of last year was 3.4%, and the third quarter of last year was as high as 4.9%, economic growth, employment is not bad, the unemployment rate in March this year was 3.8%, even lower than before the interest rate hike. Nonfarm payrolls even exceeded 300,000 in March, the highest level in the past 12 months.
The economic growth rate has maintained a relatively high growth, the number of employed people has remained high, and the unemployment rate has remained at a low level; this is the current economic and employment situation in the United States; all of this has happened under the Federal Reserve's pull of interest rates to a high level of 5.5 percent; compared with the rising interest expenses, the United States can still bear it for the time being, and the United States cannot afford to repay so many debts anyway, so what can it do with hundreds of billions of dollars in interest? In the past few years, the debts have increased by 10 trillion yuan, and they still care about hundreds of billions of interest?
3. What is the United States waiting for?
In addition to the above factors, what is the United States waiting for? Judging from the history of the past 40 years, every time the United States pulls interest rates to a high level, it will only cut interest rates after it has "seen blood." What is "seeing blood"?
At the end of the 80s, the Federal Reserve raised interest rates to a high level of 9.75%, and the end of the 80s was a turbulent time for the socialist camp, a lot happened in China, as did the former Soviet Union, Gorbachev carried out a series of radical reforms, but they all ended in failure, and even caused violent social unrest, in March 1990, Lithuania declared independence, and in 1991, the former Soviet Union collapsed.
Coincidentally, the United States began to cut interest rates in 1989 and continued until 1992, when interest rates were reduced to 3%, and interest rates were reduced by nearly 7 percentage points in three years. The former Soviet countries after the collapse are a good place to go, full of assets with very low prices in dollar terms, and this time the United States is well fed, and the US GDP has not only escaped recession, but even ushered in a wave of growth.
Beginning in 1994, the United States once again started the interest rate hike mode, this time the interest rate hike lasted for a long time, to 2000 when the highest interest rate hike to 6.5%, coincidentally, in 1997 the Asian financial crisis began in Thailand and spread throughout Asia, the entire Southeast Asian countries recession, currency depreciation, and the United States continued to raise interest rates after the Asian financial crisis, the national currencies of these countries fell to a mess. Of course, the dot-com bubble in the United States also burst, so interest rates began to be cut in 2001, and a large amount of dollars flowed out of the United States to look for investment around the world, and Southeast Asia was full of cheap assets.
The same story came again at the beginning of the 21st century, when the Federal Reserve cut interest rates to 1% in 2003, which was already the lowest level in the past, but from 2004 it entered a cycle of interest rate hikes, and in 2006 it directly increased to a high level of 5.25%, which punctured the lower sub-bubble in the United States, triggered the subprime mortgage crisis in the United States, and spread to the world, so it began to cut interest rates at the end of 2007 and reduced to zero in 2009, which is already the lowest interest rate in history.
Interestingly, the U.S. interest rate hike and interest rate cut caused the European debt crisis to erupt, the entire European economy has been stagnant for 10 years, the EU GDP was 16.3 trillion US dollars in 2008, and it will still be only 1.675 billion US dollars in 2022, 14 years later, the GDP is still in place.
Coincidentally, every time the United States raises interest rates and cuts interest rates, it will always be accompanied by some crises, from the former Soviet Union, to Asia, to Europe, and now the United States has entered a cycle of raising interest rates and cutting interest rates, who will fall this time?