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Home Politics: Breaking Political News & Updates U.S. Interest Rate Cuts Slow Down, Experts Warn: Recession May Not Be Far Off

U.S. Interest Rate Cuts Slow Down, Experts Warn: Recession May Not Be Far Off

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The U.S. Department of Labor Building

After the Federal Reserve initiated a rate cut in September, its stance on future monetary policy remains unclear, as it has repeatedly signaled that it is “not in a hurry to cut rates quickly,” causing fluctuations in global markets. However, the Fed’s “data-driven monetary policy” approach has not convinced market institutions, and the cost of slowing down the rate cut pace is significant.

On September 30, Federal Reserve Chairman Jerome Powell stated that there is no predetermined path for monetary policy and that future actions will continue to be guided by data, aiming to strike a balance between curbing inflation and supporting the labor market. He emphasized that the 50 basis point rate cut in September “does not mean there will be more significant cuts this year,” and that the Fed “is not rushing to cut rates quickly.”

Powell

On September 18, U.S. Federal Reserve Chairman Powell attended a press conference in Washington.

This statement dampened expectations of those betting on another 50 basis point rate cut, leading to a strong market reaction. As a result, U.S. two-year Treasury yields surged, the USD/JPY exchange rate rose by more than 1% in a short period, and U.S. stocks briefly fell across the board. Traders quickly lowered their bets on the overall rate cut size by the Fed. Analysts pointed out that due to the large revisions in U.S. economic data, growing concerns about a recession, and rising interest payment pressures, the Fed has limited room to slow down its rate cut pace.

The Fed has repeatedly stated that the pace of rate cuts will depend on economic data, but the credibility of U.S. data is being challenged. In mid-August, the U.S. Department of Labor announced a downward revision of 818,000 to the number of jobs added over the year ending in March, slashing nearly a third of the previously reported figure. Such a large revision in key economic data is rare, both historically in the U.S. and globally. This significant revision has led market participants and economists to question the reliability of the Fed’s data-dependent decision-making mechanism, suggesting that it “may undermine confidence in U.S. official statistics.” Therefore, the data foundation on which the Fed is adjusting its rate-cut pace may not be solid.

The prolonged high-interest rate environment in the U.S. continues to raise recession risks. Despite the Fed repeatedly stressing that “the overall U.S. economy is strong,” market institutions and economists believe a recession is not far off. Several U.S. investment banks, including Goldman Sachs, have recently warned clients to prepare for a key economic shift, stating that “some changes in the macroeconomic landscape suggest that the probability of a recession has significantly increased.” The moves by famed investor Warren Buffett, who has accelerated stock sales, are also being closely watched. Over the past two years, he has sold off several long-held core stocks, causing his company’s cash reserves to surge by 161%, reaching $276.9 billion. Maintaining high-interest rates will only further amplify risks, creating more challenges for policy adjustments.

The greatest pressure comes from U.S. finances. A report from the U.S. Congressional Budget Office released on October 8 shows that in fiscal year 2024, federal government revenue will reach $4.918 trillion, while total expenditures will hit $6.752 trillion, with a budget deficit exceeding $1.8 trillion, up $139 billion from the previous fiscal year. Of this, net interest on public debt will total $950 billion, an increase of $240 billion over the previous fiscal year, a 34% increase, accounting for 14% of the total annual budget—exceeding U.S. defense spending. Currently, the total U.S. federal debt continues to climb. If the Fed persists in slowing its rate cut pace, interest payments will continue to soar, inevitably worsening the U.S. fiscal situation.

Analysts suggest that the Fed is likely not unaware of these circumstances, but its recent indecision on rate cuts could be driven by a desire for stability as the election approaches, or it may be leaving room for future policy adjustments. However, “failure to assess the situation will lead to errors in both easing and tightening.” Given the current state of the U.S. economy, any hesitation that results in missing the window for policy adjustments could lead to even greater problems.

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