Editor's note: Recently, Liu Ying, a researcher at the Chongyang Institute for Financial Studies of the Chinese University and director of the cooperative research department, published a commentary article in the 21st Century Business Herald pointing out that although from the perspective of inflation data, the United States still does not have the conditions for interest rate cuts, but considering the pressure of United States' economic growth and debt burden, the Fed will have to start the interest rate cut week. The article is now published as follows:
The Fed's latest interest rate meeting is over, and the market is basically determined that the Fed will "enlarge its moves" in September, and the interest rate cut cycle is coming. However, whether United States inflation and the United States economy can support United States interest rate cuts still need to be comprehensively evaluated. At the beginning of this year, the market generally expected the Fed to enter a rate cut cycle around the middle of the year, but because United States inflation has always been quite far from the 2% target range, the expected rate cut time has been postponed again and again. The total federal government debt of United States has now exceeded the $35 trillion mark. With the United States federal funds rate at a historically high of 5.25%-5.5%, United States' federal government debt has continued to accumulate rapidly and accumulate risks, affecting the United States and the global economy like a dammed lake. Judging from the inflation data, in fact, the United States still does not have the conditions to cut interest rates. The latest data showed that the United States consumer price index CPI was 3% in June, down from 3.1% in January, but still far from the 2% inflation target. In particular, the core CPI in June was as high as 3.3%, which was only a slight decrease from 4% in the previous year, and there is still work to be done to achieve the target range of 2%. The persistence of inflation has also forced the United States to re-examine its high tariff practices, after all, these measures will directly push up the level of inflation in the United States. However, judging from the manufacturing PMI index, the United States has to take interest rate cuts as soon as possible. The United States manufacturing PMI and non-manufacturing PMIs fell below 50 in June, as low as 48.5% and 48.8%, respectively. The last time there was such a sluggish manufacturing PMI and non-manufacturing PMI data in United States was back in April-May 2020 during the new crown epidemic. From the perspective of economic data, United States GDP growth in the first and second quarters of this year achieved 1.4% and 2.8% respectively, which is a relatively sluggish growth rate this year. Looking at debt data, United States' federal government debt has exceeded the historical mark of $35 trillion from less than $20 trillion before the outbreak of the new crown epidemic. United States federal government debt ratio has also been rising, from less than 80% before the epidemic to more than 122% at present, exceeding the international warning level of 60%. Borrowing money is to be repaid, but the higher the interest rate, the more difficult it is to repay the debt, so the United States government also urgently needs the Federal Reserve to cut interest rates to ease the huge debt burden. United States' high debt is not only on the government side, but also on the corporate side and the bank side, and it is urgent to reduce the debt burden by lowering the interest rate level, so as to travel lightly and develop the economy. The current high interest rates are directly dampening corporate investment in the United States. More importantly, high interest rates have also inhibited United States consumption-led economy, United States consumers borrowing money to spend, and high interest rates have undoubtedly inhibited people's spending space. In short, although the current United States inflation is still far from the 2% target range, but considering the United States economic growth pressure, debt burden pressure, the Fed will have to start the interest rate cut cycle, the question is only whether it will cut interest rates once or twice this year, otherwise the continuation of high interest rates will bring an unbearable burden to the United States economy. Therefore, the United States entering a cycle of interest rate cuts in September is not only in line with market expectations, but also brings timely rain to the United States economy.
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Established on January 19, 2013, Chongyang Institute for Financial Studies of Chinese University of China (Renmin University Chongyang) is the main funding project donated by Chongyang Investment to Chinese University and set up an education fund for operation.
As a new type of think tank with Chinese characteristics, Chongyang has hired dozens of former politicians, bankers, and well-known scholars from around the world as senior researchers, aiming to pay attention to reality, advise the country, and serve the people. At present, the Chongyang National People's Congress has 7 departments and 4 operation and management centers (the Center for Ecological Finance, the Center for Global Governance, the Center for China-US People-to-People Exchange, and the China-Russia Center for People-to-People Exchange). In recent years, the Chongyang National People's Congress has been highly recognized at home and abroad in the fields of financial development, global governance, major-country relations, and macroeconomic policy.