The Fed finally managed to hold on in June. It is rare that the CPI data and the interest rate decision are released at the same time. This is because the Fed has made a direct statement before, right? He said that weak employment will make us cut interest rates in advance, but strong employment does not necessarily make us postpone the interest rate cut. What determines whether we will postpone the interest rate cut is the inflation data. This is a typical example of not speaking human language. Although his own logic is fragmented, we can still sort it out for everyone. What exactly is this statement saying?
First of all, because he discussed the factors that affect whether the interest rate cut is in advance, right? So, the first thing we need to reach a consensus on is to cut interest rates in advance, that is, to cut interest rates in advance is a stimulus policy, which is expected by the market and everyone wants to see, right? Then, delaying the interest rate cut is equivalent to a contractionary policy, which is what the market does not want to see. At this time, let alone continuing to raise interest rates, even delaying the interest rate cut will make everyone feel nervous. Then he mentioned two data indicators, one is the employment rate and the other is inflation CPI. The employment rate is a leading indicator, which usually changes before the economic changes. What does it mean? It means that everyone must first get a job, so that the company can start work, produce products, and everyone can earn money, right? With income, he will spend it. Therefore, the indicator of the employment rate changing in advance, you can also understand it as the employment rate, which is more like a sign. On the contrary, the inflation rate, CPI is a lagging indicator. It usually starts to change after the economy has changed. CPI will only change after everyone has started working and producing, received income, and consumed it. So you can also understand that the inflation rate is already the result.
Well, let's look back at what the Fed said. It said that if the employment rate is not good, it will cut interest rates in advance, and if the inflation rate is too high, it will postpone the rate cut. So you find that its current strategy is to use leading indicators to mark stimulating easing policies and lagging indicators to mark contractionary tightening policies. Right? Employment is the leading indicator. If the employment rate is not good, it will cut interest rates in advance. CPI is the lagging indicator. It will postpone the rate cut and continue to tighten after CPI exceeds expectations. So what does it mean? It is more positive about stimulating policies and more negative about contractionary policies, right? Because you want to implement stimulating policies early, you will cut interest rates in advance when the leading indicators change, and then implement contractionary policies cautiously later. It will postpone the rate cut after the leading indicators start to change. So the logic released by the Fed actually implies its own judgment on the current US economy. It is actually negative overall, not positive at all, not even neutral, right? It is obviously more worried about the economic recession and the failure of the stimulus policy, so it thinks this way, right?
Now comes the key point. His logic bug appears. Since you are generally pessimistic about your own economy and agree with the market's expectations for interest rate cuts, why don't you cut interest rates? Why are you still considering postponing the interest rate cut? This is illogical, right? It is not in line with the law. According to objective laws, you should have cut interest rates long ago. Cutting interest rates is rational and in line with economic laws. And don't forget that your other hand is still madly issuing treasury bonds. What are you doing, right? Printing money on the one hand and postponing the interest rate cut on the other hand, what are the reasons and reasons for you to make such a decision that goes against the law and reality? It can only be irrational or non-economic considerations.
So you know why we say that the Fed has been inconsistent and abnormal in its logic in the past two years. Well, it is not our conspiracy theory, but rational and objective people have noticed that it is wrong. It is irrational for you to blindly follow and believe in its investors and institutions at this time.
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