Recently, the news that American traders have gambled on the Federal Reserve's violent interest rate cut has sparked heated discussions.
In the recent U.S. interest rate options market, some traders have made very aggressive bets: betting that the U.S. will cut interest rates from 5.5% to 2.25% by the first quarter of next year, that is, by at least 300 basis points.
According to the regular operation of 25 basis points of each reduction, 12 rate cuts are required!
This action immediately attracted widespread attention and discussion in the market.
Not long ago, on June 25, Fed Governor Michelle Bowman sent a clear signal that no interest rate cuts are expected in 2024 and that the expected rate cut will be postponed to 2025.
Interestingly, these options traders are judging the opposite of the Fed's release.
Options trading is extremely risky, and if you are not careful, you may be crushed.
Are these traders betting wrong, or is the Fed setting off smoke bombs?
According to statistics from the U.S. Department of Commerce, in the last two years, U.S. exports have been suppressed since 2023 due to violent interest rate hikes in the United States, and in June 2023, exports decreased by 9.6% year-on-year.
Subsequently, exports began to grow slowly.
In April 2024, the export value was 117.3 billion US dollars, but there is still a big gap from the 173.5 billion US dollars in April 2022.
The import trade volume also began to decline in 2023, decreasing by 12.3% year-on-year in March 2023, and then gradually recovered.
In April 2024, the import trade volume was 269.3 billion US dollars, but compared with 278.7 billion US dollars in April 2022, there is still a gap of 9.4 billion US dollars.
And this result was achieved in the context of a sharp appreciation of the dollar.
As can be seen from imports and exports, in the case of sharp interest rate hikes in the United States, imports and exports in the United States are relatively weak.
Imports in particular, the dollar continued to strengthen, but U.S. imports did not grow as fast as expected.
Overall, the current consumption power of the United States is declining compared to 2022.
Let's look at another forward-looking statistic.
According to the American Confidence Council, the current U.S. consumer confidence index is still significantly lower than in 2019, before the pandemic.
The US consumer confidence index weakened again in June, falling to 100.4, on expectations of weaker business conditions, the job market and income outlook.
In May and June, the decline in confidence was mainly concentrated among consumers aged 35-54, that is, middle-aged people in the United States, who lack confidence in the future.
Separately, the US Consumer Condition Index (based on consumers' assessment of current business and labor market conditions) rebounded in June, rising to 141.5 from 140.8 in May. But there is still a big gap from 2019.
The consumer expectations index (based on consumers' short-term outlook on income, business and labor market conditions) continued to deteriorate, falling from 74.9 in May to 73.0 in June, well below the threshold of 80.
If the consumer expectation index is below 80 for a long time, it indicates a recession in the next two years.
From the above data, it can be seen that under the Fed's violent interest rate hikes, Americans are also less confident in the future and are not willing to spend.
As a consumption-oriented country, low consumer confidence means that there may be a recession in the future.
Of course, the Fed will not sit idly by and watch the US economy fall into recession.
The best way to do this is to cut interest rates well in advance of a recession.
But for well-known reasons, the Fed wants to hold out for another two months, which is actually another big gamble.
If the bet is won, the United States will reap the harvest, and if the bet is lost, the United States will be eaten up, and the economy will fall into recession.
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