Grasp the macro perspective and earn money from the cycle The recent data released by the Federal Reserve shows that it will incur operating losses of $77.6 billion in 2024 and $114.5 billion in 2023, with two consecutive years of deficits. While this may seem alarming, it is not a coincidence, but rather a direct result of its policy choices. Let's take a closer look at it: Radical balance sheet expansion in 2020-2021: During the pandemic, the Federal Reserve expanded its balance sheet to $9 trillion through large-scale bond purchases through QE. Strong interest rate hikes in 2022-2023: In order to curb inflation, the Federal Reserve raised interest rates to 5.25% -5.5%, but at the cost of holding low interest assets that yield less than the interest cost paid to banks. The termination of profit transfer by the Ministry of Finance has increased government funding pressure: In the past decade, the Federal Reserve has contributed hundreds of billions of dollars in profits to the Ministry of Finance every year, but it has completely stopped from 2023, further worsening the US fiscal deficit. So the current policy dilemma facing the Federal Reserve is: 1. The longer high interest rates are maintained, the greater the losses: If the Federal Reserve does not cut interest rates in the short term, it means that interest expenses will remain high and losses may continue. 2. The Ministry of Finance lacks funding support from the Federal Reserve: The US fiscal deficit has approached $2 trillion, and the Federal Reserve no longer contributes profits, which may lead to increased fiscal pressure. 3. The window for interest rate cuts is limited: Although inflation has eased to some extent, the job market remains tight, and cutting interest rates too quickly may bring new inflation risks, limiting the space for policy adjustments. So now, the cost of high interest rates is becoming apparent, and the Federal Reserve is facing a dilemma: If interest rates continue to be high: maintain austerity, curb inflation, but losses expand, US bond interest expenses increase, and the fiscal situation deteriorates. If interest rates are cut in advance: easing financial pressure, but may push up inflation and weaken policy credibility. Let's wait and see which direction it is. Take action when necessary