This article is from the WeChat public account: Extraordinary fritters (ID: ffyoutiao) , author: fermented bean curd children, from the title figure: the movie” wolf of Wall Street “
Within two weeks, the US stocks melted four times, and the next four times were “Eight Melts and Eight Disgraces”, which was really unexpected. In order to save the market, the US federal funds rate target range has been directly reduced to 0% to 0.25%.
Of course, you said that this U.S. stock shouldn’t fall, that’s not right. After all, from 2017, many institutions believe that U.S. stocks are overvalued. In 2018, they were not optimistic about U.S. stocks. As a result, U.S. stocks have continued to hit new heights in recent years, and Trump is very happy. And those institutions that are not optimistic about the US stock market are seriously short of money, and they have not made good money.
With the passage of time, the cycle of the US stock market bull market is getting longer and longer, the gains are getting higher and higher, and it is becoming more and more dangerous. The US stock market is similar to the housing market in another country. All participants feel that it has a bubble, but they do not know when the bubble will burst. They always feel that they can withdraw before the bubble bursts.
This is also in line with human nature. After all, many Americans directly or indirectly (through pensions) Invested in US stocks, and the continued rise of US stocks means Their wealth is constantly increasing.
Trump is naturally happy that U.S. stocks have risen, and has tied the U.S. stock bull market to his own governing. This way, as if he can be tied to the bull market for a long time, he can get the support of most Americans and easily win this year’s election. Continue to be President for four years.
In order to maintain his approval rating and win the election at the end of the year, Trump has also tried his best. For example, Trump likes to boast of his economic achievements. In order to stimulate the economy, he has vigorously cut taxes and repeatedly expressed his dissatisfaction with the Fed’s interest rate hike. The Fed’s interest rate hike process has come to an end, and he has made a contribution to reducing interest rates again. Stimulated by this strength, the extra hot money on the market is constantly pouring into stocks.City, the bull market in the US stock market can be maintained, he will have more confidence to tout his economic policies.
But is it really a good thing to keep cutting interest rates?
Paul Volcker, who died last year, is hailed as “the greatest Fed chairman in American history.” In order to tame inflation, he dared to stick to high interest rates. During his tenure, the Federal Reserve Board increased the discount rate to 13% twice, and the Open Market Committee raised the federal funds rate to more than 20%. Although high interest rates made the company unbearable, he persisted in keeping inflation down.
Interest rates must not only fall but not rise, otherwise the accumulation of bubbles will cause hidden dangers in the future. If interest rates are raised, hot money will be prevented from entering the stock market or the housing market, and bubbles will not accumulate too quickly. At the same time, there will be room for stimulating the economy when interest rates decline in the future.
However, after the Federal Reserve Chairman after Volcker, without his strong personality, the United States ’national strength was relatively declining, and the subsequent Federal Reserve Chairman never dared to raise interest rates to Volcker. There are still interest rate increases, but the highest interest rate at the end of each interest rate increase cycle did not exceed the peak of the Volcker period. This peak was getting lower and lower until the recent rate hike cycle came to an end.
Of course, the Federal Reserve has been more cautious in raising interest rates, and the weakness of the US national strength is also a major reason. The iconic event was the financial crisis of 2008. In order to save the market, starting in September 2007, after ten reductions, the federal funds rate fell to a historical low of 0.14% at the end of 2008. Near zero interest rates are nothing new for the United States.
This extremely low interest rate period lasted for 7 years, until a new round of interest rate hikes began in December 2015. After nine interest rate increases, by the end of 2018, the federal funds rate rose again to 2.4%. But even so, the cycle of interest rate hikes did not last long. By March 2019, the Fed’s monetary policy committee announced its decision to stop raising interest rates and shrinking its balance sheet. After that, the rate cut cycle began, until this time the US federal funds rate target range was directly reduced to 0% to 0.25%.
This round of interest rate hikes lasts for less than four years. It hastily ended, and soon entered the interest rate reduction cycle, and even fell to the current zero range. The main reason is that the US economy is not as strong as it is on paper. strong>. Although Trump ’s tax cuts have stimulated the economy and the unemployment rate is very low, the inflation signal to decide to raise interest rates has not been obvious, which shows that the economy does not seem to be overheating.
However, Trump should also be held responsible for the Fed’s continued interest rate cuts.
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