As the global economy experiences fluctuations, every policy adjustment by the Federal Reserve sends ripples through the market. With the final interest rate decision of the year approaching, market expectations for a rate cut have reached a near frenzy. However, behind this "rate cut party," potential hidden dangers and complex economic signals leave one feeling anxious about the future.
High Probability of Rate Cuts: Market Confidence is High, but Uncertainty Remains
According to the latest data, the probability of the Federal Reserve cutting rates by 25 basis points this time is as high as 97%. However, can this one-sided expectation really hold up?
Despite the enthusiasm among investors for a rate cut, some economists have voiced starkly different opinions. They believe that the Federal Reserve's action may not be as "set in stone" as the market imagines. In the context of a strong economy and stable inflation, whether a rate cut is appropriate remains a mystery.
Divergence Emerges: Is a Rate Cut a "Cure" or a "Poison"?
Ed Yardeni: A Rate Cut Could Be a "Bubble Catalyst"
Ed Yardeni, president of Yardeni Research, candidly stated that current economic data is strong, and while inflation has eased, it has not yet reached the Federal Reserve's 2% target. In his view, continuing to cut rates could "add fuel to the fire," triggering asset market bubbles and ultimately leading to a "severe adjustment." Yardeni believes the Federal Reserve should hold its ground and give the market and itself more time to observe the true direction of the economy.
Esther George: Caution is the "Hard Truth"
Former Kansas City Fed President Esther George has been even more direct in opposing a rate cut. She warns the market that current inflation is not declining as quickly as expected, and the Federal Reserve's priority should not be to cater to the market but to maintain a high level of focus on the inflation target. She also hinted that the pace of rate cuts may significantly slow down or even come to a complete halt in the coming year.
The views of these two heavyweight figures undoubtedly dampen the market's fervent expectations for a rate cut. Are their concerns justified? Let’s seek answers from deeper economic data.
The "Delicate Balance" of Inflation and Economic Growth: The Federal Reserve's Dilemma
The Federal Reserve's decision on rate cuts hinges on finding a delicate balance between inflation and economic growth. However, current data complicates this balance even further.
Inflation: Easing but Not Meeting Targets
AICoin (aicoin.com) data shows that U.S. inflation has risen for three consecutive months, climbing to 2.7% in November, still distant from the 2% target. This suggests that inflation's "stubbornness" may be stronger than the market expects.
Economic Resilience: Strong Labor Market
At the same time, the labor market remains robust, with employment data consistently exceeding market expectations. This economic resilience not only demonstrates the strong endogenous power of the U.S. economy but also adds more uncertainty to the Federal Reserve's decision on rate cuts.
In other words, if the Federal Reserve implements further rate cuts too early, it may miss the opportunity to "keep inflation in check." Conversely, if it maintains high rates, it could suppress economic growth. Faced with this dilemma, what should be the Federal Reserve's next move?
Investor Expectations and Concerns: Market Direction After Rate Cuts
Despite the divergence between economists and market analysts, investor sentiment remains optimistic. The market generally expects that the Federal Reserve may hit the "pause button" after the December meeting, delaying further rate cuts.
Goldman Sachs' Warning: A "Return to Rate Hikes" After Cuts
Goldman Sachs Chief Economist Jan Hatzius pointed out that strong economic data may force the Federal Reserve to reassess its future policy path. He even predicts that in 2025, the Federal Reserve may have to switch back to a rate hike mode to address potential economic imbalances.
Apollo's View: Increasing Policy Uncertainty
Apollo Global Management Chief Economist Torsten Sløk believes that while rate cuts can temporarily boost the market, they are not a panacea for economic issues. He cautions investors not to be misled by short-term market sentiment and to remain aware of long-term structural risks.
Future Policy "Variables": Speculations on Policy Adjustments in 2025
While the market currently has a relatively unified view on the rate cut path for 2024, the year 2025 is full of uncertainties.
Warning from Former Fed Officials: Don’t Be Too Optimistic
Former Federal Reserve official John Roberts warns that the market may underestimate the uncertainties brought about by the Trump administration's policies. He believes the Federal Reserve may readjust its rate cut plans in 2025 and could even tighten rate policies again. He anticipates that next year's rate cut may only be 75 basis points, rather than the 100 to 125 basis points expected by the market.
This suggests that the Federal Reserve's policy adjustments will become more complex and cautious. Investors relying solely on short-term data or market sentiment may miss a comprehensive understanding of future situations.
Final Thoughts: The Market Needs to Calmly Face the Rate Cut Dilemma
The Federal Reserve's policy choices have never been a simple "math problem," but rather a gripping "game." While rate cuts may temporarily boost the market, their long-term effects are difficult to predict. The current state of economic data, which is "strong yet concerning," adds suspense to this decision.
For investors, it is crucial not to be led by short-term market sentiment but to view the economic trend from a broader perspective. Regardless of the Federal Reserve's final decision, future market volatility may be higher, and only by preparing in advance can one find a foothold amid uncertainty.
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