Some fans asked me to share my thoughts on rate cuts—ugh, you’re putting me on the spot again... First off, the Fed’s legal mandate is to achieve full employment and maintain price stability. Both goals are focused on the U.S. domestic economy—they don’t care about the rest of the world’s problems. They’re not going to blindly pump liquidity to bail out our housing market... The Fed’s official stance is a 2% inflation rate, and looking at the current situation, inflation is still high, far from reaching their goal of controlling it. Secondly, the U.S. economy is resilient, and job demand is strong. It’s not that there aren’t jobs—it’s just that there are too many lazy people in the U.S. This gives the Fed the confidence and room to maintain higher interest rates to combat inflation. If they cut rates again, factories will ramp up production and aggressively hire, but those lazy folks still won’t go to work... Also, the U.S. dollar’s status as the world’s top reserve currency is rooted in its “store of value” function. Prolonged high inflation would severely weaken the dollar’s purchasing power. Yesterday, they hadn’t even cut rates yet, and the RMB (Chinese yuan) started appreciating... RMB assets went wild with joy, and this is definitely not what the Fed wants to see. Lastly, what the market truly cares about is the real interest rate = nominal interest rate - inflation rate. For example, if the Fed keeps rates at 4% but inflation drops from 3% to 2%, the real interest rate actually rises from 1% to 2%. This means that even if the Fed doesn’t cut rates, the tightening of monetary policy is automatically intensifying. To avoid this passive tightening caused by falling inflation, the Fed might need to make a “symbolic” rate cut to stabilize the real interest rate. This is called a “technical adjustment.” The Fed ultimately aims to adjust rates to a “neutral” level—one that neither stimulates nor suppresses economic growth. There’s a lot of debate about what that level actually is. The start of rate cuts signals the Fed’s shift from a clear “tightening” stance to exploring an uncertain “neutral” stance. This is the trickiest part. The market interprets it the same way—the Fed hasn’t entered a phase of blindly stimulating the economy, nor is there a need to. It’s more about neutral regulation. For a certain factory boss, this is the best scenario. When market consensus is chaotic and inconsistent, it’s the easiest time to operate. If everyone unanimously expects a bull or bear market, volatility disappears, and the risk of profiting from options increases significantly... #Fed #RateCuts #Inflation #USD #RMB #Markets