The latest statements from Fed officials have attracted attention.
Atlanta Fed President Rafael · Bostic, a member of the 2024 Federal Open Market Committee and president of the Atlanta Fed, said in his latest speech: "The Fed should patiently gradually lower its policy rate, not rush to adjust interest rates to neutral, we must return inflation to the 2% target level." In addition, San Francisco Fed President Daly is also open to not cutting interest rates in one of the remaining two Fed policy meetings this year.
This has sparked expectations that the Fed will pause its rate cuts at a certain meeting, although financial markets are still pricing in two more rate cuts of 25 basis points each by the end of the year, with further cuts next year.
At the same time, United States' latest fiscal deficit is also in the spotlight. On October 18, local time, the United States Treasury Department released the budget deficit for fiscal year 2024, with the budget deficit reaching $1.833 trillion, an increase of 8% over fiscal year 2023, and the interest on federal debt exceeded $1 trillion for the first time. This is mainly due to the fact that the Federal Reserve has raised interest rates aggressively and kept interest rates high for a long time, which has led to a heavier cost burden of interest on government debt, the cost of social security programs, and increased military spending.
The Federal Reserve, a major variable!
The Federal Reserve's latest statement
On October 18, Eastern time, 2024 Federal Open Market Committee member and Atlanta Fed President Rafa·el Bostic said that the Fed should patiently gradually reduce its policy rate, so as to reduce inflation to the target level of 2% while keeping the United States economy from falling into recession.
On the same day, Bostic pointed out at the United States Corporate Economic Education Forum in Mississippi: "We are not in a hurry to adjust interest rates to a neutral level, we must return inflation to the target level of 2%, and we will be patient." ”
The neutral rate refers to the level of interest rates that neither stimulate nor inhibit economic growth, and Bostic believes that the neutral policy rate should be in the range of 3% to 3.5%.
Bostic noted that he expects the Fed to cut its benchmark interest rate further. "If the economy continues to follow current trends, if inflation continues to fall, the labor market remains strong and still sees positive production, then we will be able to continue on the path back to the neutral rate."
Bostic expects that inflation in the United States could fall to the Fed's 2% target by the end of 2025, at which point interest rates should also be able to adjust to neutral levels.
At present, financial markets expect that the Fed will cut interest rates two more times by the end of this year, each by 25 basis points, and further rate cuts next year, and by September 2025, the federal funds rate may fall to the range of 3.25%~3.5%.
But the Fed's outlook for rate cuts appears to be more uncertain, with the United States job market data coming in much stronger than expected and the unemployment rate falling to 4.1% after the Fed cut rates by a massive 50 basis points in September.
This has sparked expectations that the Fed will pause interest rate cuts at a meeting, and Bostic revealed in a previous interview that he is open to "no rate cuts at the November meeting, or only 25 basis points", depending on the development of the economic outlook.
In addition to Bostic, San Francisco Fed President Daly is also open to not cutting rates at one of the Fed's remaining two policy meetings this year. Speaking at New York University this week, Daly said "one or two rate cuts are reasonable" if the United States economy continues its recent trend.
Daly stressed that the central bank's 50 basis point rate cut last month is not indicative of the magnitude or pace of future rate cuts. Despite two better-than-expected economic reports released over the past month, she said she was not convinced that inflation was picking up.
United States' fiscal deficit exceeded $1.8 trillion
At a time when the Fed has just started its interest rate cut cycle, the United States government debt crisis has sounded the alarm.
On October 18, Eastern time, the United States Treasury Department announced that in the 2024 fiscal year ending September 30, 2024, the United States federal government's budget deficit reached $1.833 trillion, the third highest on record, second only to the $3.132 trillion in fiscal year 2020 and $2.772 trillion in fiscal year 2021 during the new crown epidemic.
The United States federal government's fiscal 2024 budget deficit has widened by more than 8.1% from nearly $1.7 trillion in fiscal 2023, and the deficit-to-GDP ratio exceeded 6% for the second consecutive year, accounting for 6.4%, slightly higher than the 6.2% in fiscal 2023.
This is mainly due to the higher cost burden of interest on government debt as a result of the Federal Reserve's interest rate hikes and keeping interest rates high, the cost of social security programs, and military spending.
Among them, the increasing interest on debt is one of the main drivers of the widening deficit. In fiscal year 2024, interest payments on United States government bonds reached $1.1 trillion, the first time annual interest payments exceeded $1 trillion, an increase of $254 billion, or 29%, from fiscal year 2023. Based on this calculation, debt interest expenses account for about 3.93% of GDP, the highest proportion since 1998.
The Federal Reserve, a major variable!
Analysts believe that with the Fed kicking off the easing cycle with a massive 50 basis point rate cut in September, the pressure on interest payments on the United States government is expected to ease in the future.
At the end of September, the weighted average interest rate on outstanding United States federal debt was 3.32 percent, the highest level in about 15 years. Reuters quoted a United States Treasury executive as saying that the weighted average interest rate on the cost of debt began to fall in September, the first time since January 2022.
Looking at the future fiscal deficit of United States, some analysts say that both "Harris economics" and "Trump economics" have one thing in common: deficits. The economic policies proposed by Democratic presidential candidate Kamala Harris and Republican presidential candidate Trump may lead to higher prices and widening fiscal deficits in United States.
财政智库the Committee for a Responsible Federal Budget估算，哈里斯的经济计划将导致十年内政府债务增加3.5万亿美元，特朗普的经济计划将使债务飙升7.5万亿美元。
Editor-in-charge: Li Dan
Proofreading: Zhao Yan
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