經濟,財務,統計學,數理科學與政治評論

Does the Fed really need a interest rate cut or not in the summer time of 2019?

Let's consider its pros and cons....

Pro:

a. To prevent the US bond yield go negative as European countries and Japan

  It is not the case and the reason is mcuh weaker when there are already 13 trillion USD government bonds with negative yield. The yield chasing investors would keep buying the positive yield US Treasuries.

b. To prevent the economic downturn of US

  It is not the situation when the US needs is structural change. Now, the US needs new industry to help Americans have a better life. The waste processing and the anti-climate changing industries are needed to have greater reward in the promised land, the United States of America.

c. To lower the exchange rate in order to increase the competitiveness

  The exchange rate movement depends on lots of risk factors, the rate cut is just one of them.A higher oil price makes the euro not to be too weaker because the Euro area is afraid of inflation. The Fed's rate cut with oil price downward may not put the USD to be a weaker currency. It is the case that the currency's value doesn't just depending on rate cut or not.

Cons:

  If the unemployment rate of US doesn't go even lower or the employment data doesn't go well, the possibility of lowering rate from the Fed may be an option. But there are two concerns...

  1. Oil price may go up as the tension between Iran and the US grows. It may trigger the inflation of US.

  2. Even the Fed lowering rate,we may not see much progress of consumption raise from American consumers because of the end of economic cycle. Now we know the Trump administration works harder to extend the booming years of the economic cycle. Lots of people still put their money in the US market periodically. BUT we do not see any big US corporates keeps employing Ameicans all the time. On the contrary, we see the employment cut.

  We do hope the lowering rate policy of Fed emerges at the proper time. People are still concerned the lowering rate may not be that great but to reduce the financing cost only. Maybe, the Fed could use some rate cut as a precautionary move if the Fed decides to lower the rate in July. People may hope the rate cut of Fed may trigger a weakering USD, but it may not get what people wants. There is an assumption that a weakening USD may trigger lower deficit and bring the US more export. The conflicts are still there with ....

A. The most concern here is the new QE from other central banks, we know the JCB still has the QE and the ECB plans to have another QE. It may largely bring the rate cut of Fed to be void if the Fed expects to have a weakening USD and export booming when we are in the end of booming years. It makes things even harder in today's situation when the US is going from mature to some mild recession as other countries or areas have.

B. The other concern is about the financial market, the squeeze of carry trade. The most ones people use are euro and Japanese yen. A higher USD currency helps the carry trade of emerging market sector with weaker euro and JP yen that bring much rewards for financial traders. A lower USD may break the situation of rewarding emerging market investment. All those acts may bring down the performance of US financial markets either. Unless market traders transfer their carry trade currency from the euro or JP yen to USD, we may see some structure change from trading behaviors in the emerging markets and others whcih brings extra cost with undetermined proft/loss.

C. The Trump administration hopes the USD could focus on  the US markets to help Americnas out of miserable and have more jobs. If the USD goes softer, it may trigger the USD flood to the whole world to chase other possibilities. We have no idea if it is good for Americans.

What's really going on?

1. The orignal sin of negative yield rate with negative intereat rate

   The negative yeild rate of Germany and France is a sin, not a bless. Germany restricts itself and other euro adopted countries to expand its fiscal policy makes today's disaster. Germany should increase its defense budget. France should tolerate its fiscial expense on pension. All in all. those acts bring disasters to the Euro area. It is a disaster, not a bless. Because the supply of Germany bund and Franch bond are too low but the demand of those bonds are too large, it creates the negative yield rate of Bund. It is so unfair to subsidize the Germany with all those euro and makeing those people with euro and having invested in those government bond in a disaster. We all know that the south countries in the euro area should adopt more aggressive fiscal policy to revive its service industry. All those countries should form a new currency to replace the euro which permits those coountries could have more extreme fiscal policy to help its own people.

2. A much lower inflation rate all around the world

   People take the lower inflation rate as a disease which could make people miserable in their lifetime. To conter the problem, we need more out-of-box thinking. Manufacturing jobs home is one kind, rennovated service jobs is the other. The most important thing is how to make some daily need necessities to be more new-manufacturing-based products, with the issud of how to preserve the earth with new garbage and waste processing industry.