Fed May Cut Rates Amid $200B Loss Risk
On October 4th, the United States announced that non-farm payrolls had increased by 254,000 in September, far exceeding expectations by over 100,000. The stock market soared, prompting an urgent response from the White House, which praised the Biden administration's leadership. This naturally leads one to wonder, with the upcoming U.S. election, is this another instance of data manipulation by the United States aimed at garnering votes for the Democratic Party?
While the U.S. non-farm payroll data is being lauded, the Federal Reserve is facing a staggering loss of $200 billion, primarily due to soaring interest expenses. As a significant source of revenue for the U.S. Treasury, the Federal Reserve's losses raise questions about whether interest rates might continue to drop this year, and what will happen to the U.S. $35 trillion debt?
JP Morgan bears pessimism towards China
Designated as a prominent target in the U.S. interest rate hikes, China has undoubtedly attracted the avid interest of American capitalists throughout the past year of rate increases. JP Morgan has boldly claimed that the Chinese stock market is experiencing its "last flourish."
According to certain foreign investment institutions, it appears that China's economic growth rate is slowing down, compounded by factors such as a sluggish real estate market, which could even lead to a potential collapse in the domestic stock market.
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This has spurred a wave of sentiment disparaging the Chinese stock market.
However, in reality, these so-called Wall Street elites may be a bit hasty in their judgments. Just as they are eager to seize an opportunity for profit, our government has decisively introduced a series of policy measures.
From reducing the stock transaction stamp duty, encouraging companies to engage in stock buybacks, to relaxing restrictions on securities financing and margin trading, a series of measures have provided the stock market with a vital boost, swiftly enhancing market confidence.
The final outcome is that, contrary to what many had anticipated, our stock market in China experienced a significant surge recently.
According to observations from the Observer website, traders who bet against China incurred losses amounting to $6.9 billion.
With a significant influx of foreign capital into China, the previously deemed uninvestable Chinese stock market has attracted increasing interest from foreign investors. For the U.S., which has gone to great lengths to retain hot money through interest rate hikes, the flow of foreign capital into China's stock market is undoubtedly undesirable.
On October 4th, the U.S. released its non-farm payroll data for September, revealing that within just a month, non-farm positions significantly exceeded expectations, increasing by over 100,000.
Is this yet another instance of data manipulation by the U.S.?
Is the U.S. resorting to old tricks by fabricating data again?
The recent rate decrease by the U.S. was largely due to continuous underwhelming non-farm payroll numbers, alongside easing inflation and towering debt levels. However, on October 4th, the non-farm payroll data showed a remarkable leap, with an increase of 254,000, significantly surpassing expectations by over 100,000, while the unemployment rate also saw a significant decline; the U.S. unemployment rate has now dropped for three consecutive months. Is the resilience of the U.S. economy evident, or is it yet another fabrication?
The unexpected surge in U.S. non-farm payroll data, coupled with the upward trend in the closing prices of the three major U.S. stock indices, has seen the dollar index soar, while gold prices have subsequently fallen.
The White House promptly issued a statement, proclaiming that the Biden administration's leadership has brought good news to the U.S. unemployment rate, which has hit a near 50-year low.
This raises an important question; considering the trends from the Federal Reserve's rate cuts to the non-farm payroll data, one can only surmise that this only benefits the Democrats in the upcoming U.S. elections. Is this a conspiracy orchestrated by the U.S. government?
It is worth noting that the recent 50 basis point rate cut by the U.S. has prompted Trump to assert that it is either a sign of a terribly unhealthy economy or a political charade. Now, if the September non-farm payroll data is not fabricated, the swift recovery of the U.S. economy within just a month raises the question of whether the economic resilience is genuine.
According to Xinhua News Agency, as of October 4th, tens of thousands of dockworkers in the U.S. are on strike, echoing the pandemic-era "toilet paper hoarding" phenomenon. Is the U.S. economy truly as robust as reported, or is it yet another episode of political data manipulation?
If we consider the current employment situation in the U.S., it seems that there is no immediate need for further rate cuts. So, will the U.S. continue to lower interest rates this year?
The Federal Reserve faces a staggering $200 billion loss, escalating the crisis?
Surprisingly, the Federal Reserve, often deemed the ultimate money-printing machine, has unexpectedly lost $200 billion. One might wonder why the entity responsible for producing U.S. dollars is facing such substantial losses.
To discuss the Federal Reserve's losses, we must start with its balance sheet.
While the Federal Reserve is hailed as the central bank, it operates much like a large corporation, complete with its own pocketbook—its balance sheet.
The Federal Reserve generates income by earning revenue from its assets while deducting the interest expenses required for liabilities.
The assets held by the Federal Reserve primarily comprise U.S. government-issued bonds and various types of securities, while its liabilities largely include reverse repurchase agreements and funds held in reserve.
Generally speaking, since the income generated from the Federal Reserve's assets has historically been greater than the interest paid on its liabilities, they have been able to remand hundreds of billions of dollars back to the U.S. Treasury annually over the past decade.
However, this situation began to change starting in 2022 as interest rates were hiked.
The phenomenon of inverted profit margins has now appeared within the Federal Reserve.
The issue lies in the fact that the long-term government bonds held by the Federal Reserve do not yield particularly high returns, while the interest rates on short-term bonds have surged alarmingly, leaving the Federal Reserve struggling to meet its debt obligations.
It is especially noteworthy that, to ensure that U.S. banks teetering on the brink of bankruptcy can withstand the crisis and prevent systemic financial collapse, the Federal Reserve has begun injecting funds into major banks, leading to large-scale monetary flows. This has exacerbated the existing inversion issue.
You may wonder when the Federal Reserve will overcome this financial deficit?
To be honest, in the short term, this question is quite challenging to resolve.
In other words, even though the Federal Reserve has incurred a $200 billion loss, they will likely continue to bear such losses for a considerable period ahead.
Thus, where does the $36 trillion debt go from here?
The unexpected rise in U.S. non-farm payroll data coincides with the Federal Reserve's staggering $200 billion loss.
In this intricate economic landscape, the Federal Reserve undoubtedly faces a series of arduous policy decisions.
As for whether interest rates will continue to decrease in the future, it remains a mystery; frankly, it is not currently foreseeable.
However, that being said, regardless of whether the Federal Reserve ultimately intends to raise rates or further lower them, it could have profound and significant effects on economies worldwide, potentially altering the global economic landscape for years to come.
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