As an avid trader and financial journalist, I have been paying increasing attention to the interest rate and inflation reports in the United States over the past two years. My in-depth research has revealed conflicting signals that are rarely reported in morning financial news. If you predict the market based on the optimistic attitude of Federal Reserve Chairman Jerome Powell, then your trading decisions may be built on false foundations.
So, what is the truth behind the interest rate cut transaction? What does a rate cut mean?
Firstly, let's explore the questions that many traders ask me. Is the US economy collapsing or thriving? When reading this article, please remember that the existence of economically disadvantaged groups in a country does not necessarily mean that the country's finances are bankrupt. The United States has abundant resources and occupies an important position on the global stage. Therefore, even if we see the United States continuously shrouded in gloom, it does not mean that its society and economy are on the brink of collapse.
In other words, traders have an obligation to verify or question the news released by the United States, rather than blindly believing it.
At present, the Federal Reserve insists that the US economy is strong and healthy. Financial news media also blindly follow the optimistic tone of the Federal Reserve's outlook, but if you switch to a local news channel, you will see a completely different picture.
For many Americans, the outlook for life in the United States is bleak. Rural towns are disappearing, and drugs are rampant in big cities. The number of homeless people is increasing,Urban street crimeIt has become the headline of evening news in many states. Across the United States, dual income families are overwhelmed by various bills as the prices of rent and daily necessities have become unaffordable. Does this sound like a thriving country?
The optimistic attitude of the Federal Reserve is mainly based on employment/unemployment data. The increase in employment opportunities is considered a clear indicator of economic growth. This is exactly where the fun lies. Standard U-3 unemployment rateIt does not reflect the number of unemployed people in the United States. The U-3 unemployment rate is calculated as positiveseek employmentBut the number of job seekers who failed.
Therefore, according to the Federal Reserve, the United States找If there are fewer people working, it means that the US economy is strong.
There's even worse. The employment report in the United States does not count the number of disappearing jobs, but only the number of "new" jobs. If there are 200000 unemployed people this quarter, but 10000 new jobs are added, then the employment report for the second quarter will optimistically show 10000 new jobs added, rather than the net employment change of 190000 unemployed people.
In other words, this highly anticipated employment report has no substantive significance and is only a tool to promote that the US economy is growing.
More Than This. Powell and President Joe Biden are still proudly discussing the newly added jobs, what about these new jobs? Has the US government really created millions of jobs in the past three years? according tofactcheck.orgThe answer is no. When the pandemic spread and led to global lockdowns, the United States suspended 20 million jobs. After the lifting of the blockade, Americans began to return to work, and the US government regarded these "new" jobs as optimistic data.
Every dayThousands of illegal immigrantsPreparing to join the ranks of the unemployed in the United States, where job opportunities are already in high demand.
The treasury bond of the United States continues to climb. Although the Federal Reserve proudly announces high consumer spending, they ignore that credit card consumption has been out of control. More importantly, inflation is eroding purchasing power, and Americans need to spend more money to eat. However, the Federal Reserve did not take these situations into account when depicting a bright future. Misleading goes far beyond that.
US treasury bond bonds have been increasing significantly. It is reported that by March 2024, the US treasury bond will increase by about $1 trillion every 100 days. As of the time of writing,The debt of the United States has exceeded $34.6 trillionStarting from around June 2023, debt will accelerate at this pace. Prior to this, an increase of $1 trillion in debt would take approximately eight months. Do you think this sounds healthy?
The central bank has always controlled inflation by manipulating interest rates, which in turn affects bond yields. When the central bank raises interest rates, it is usually to curb high inflation. Higher interest rates will increase borrowing costs, thereby cooling down consumption and investment. In theory, this can slow down inflation.
On the contrary, interest rate cuts are aimed at reducing borrowing costs, stimulating consumption and investment, and achieving the ideal goal of preventing economic slowdown. This will have a direct impact on the bond market. After the interest rate hike, the yield of newly issued bonds is often higher, attracting investors seeking higher returns to purchase.
On the contrary, the attractiveness of existing bonds issued at lower interest rates will sharply decline, often resulting in a price drop as investors turn to newly issued bonds with higher yields. However, when we consider the mechanisms of the real world and the chain reactions of these economic policies, the situation becomes even more complex.
For example, when interest rates fall and investors begin to sell bonds, the yield of existing bonds actually increases with the decrease in price - contrary to intuition and often not taken seriously. In addition, when interest rates rise, not only will new bonds become more attractive, but also the increase in government borrowing costs will affect all aspects from fiscal policy to the level of treasury bond.
The current common belief is that changes in interest rates will directly affect the US dollar as expected, and then have a broader impact on the economy. However, in my experience, the actual situation is more complex. The impact of interest rate cuts or hikes on the US dollar is often limited and immediate, triggering market sentiment rather than fundamental changes in currency value.
Jerome Powell said that due to the current inflation rate still far above the Fed's 2% target, the slowdown in inflation has stalled and it is unlikely to cut interest rates in the near future. Given Powell's stance, US interest rates are likely to remain high. This situation may affect several assets of Exness:
XAU currency pairs typically have a reverse relationship with the US dollar. The strengthening of the US dollar may put pressure on gold prices. During a pullback, especially near key resistance and support levels, XAU currency pairs are a crucial asset that requires close attention to potential trading opportunities.
The volatility of foreign exchange currency pairs such as EURUSD, GBPUSD, and USDJPY may increase. A strong US dollar may lead to depreciation of the euro and pound, but if global market risk aversion heats up, it may boost the yen.
The Federal Reserve insists on the statement of strong economic growth in the United States. Please remember that although surface indicators such as GDP growth and new job opportunities often paint an optimistic picture, these indicators may not fully reflect the underlying economic reality.
Traders need to challenge themselves and deeply analyze the conventional information reported by news media. In this way, we can not only avoid making short-sighted market decisions, but also fully understand the market situation, make more accurate predictions and more agile responses to market trends. Remember, trading is like life, the deeper your understanding, the more capable you are of seizing opportunities hidden beneath the surface.
Now, please question any sources that promote the health of the US economy. Persist in using Exness when testing theories related to US assetsRisk free simulation accountAnd pay more attention to the setting of leverage. The release of future Federal Reserve announcements and media coverage will certainly affect everything related to the US dollar during and after the announcement, but caution should be exercised when speculating on new trend patterns, as rebounds and crashes related to market sentiment are often short-lived.
