A global wave of interest rate cuts is approaching, beginning to force the Federal Reserve's hand.

How long can the Fed hold out?

What does this mean for the Sino-American economic rivalry?

Is it a boon or the beginning of a second round of harvesting?

Today, let's delve into this issue.

Currently, Europe can't hold on any longer, announcing a 25 basis point cut in the deposit rate to 3.5%, marking Europe's second rate cut this year!

Canada is even less able to withstand the pressure, lowering its benchmark rate by 25 basis points at the beginning of September, with the current policy rate at 4.25%, which is Canada's third rate cut this year.

However, Canada also indicated that it will make significant rate cuts before the end of the year, aiming to reduce the policy rate to 2.25% by June next year!

Advertisement

In addition, some Western developed countries such as Sweden, the UK, and Switzerland have also started a cycle of rate cuts.

The United States alone is still maintaining high interest rates.

Thus, we must ask, why are these American allies no longer following the U.S. monetary policy?

What is the truth behind this?

Furthermore, at this critical juncture in the economic rivalry between China and the U.S., where will the forced Fed go?

Will it carry out a second round of harvesting against our country?

Let's first discuss the first question today: Why are the monetary policies of Western developed countries not synchronized with the U.S. now?

It can be said that this round of global inflation was entirely driven up by the U.S.

In 2019, as the pandemic escalated in the U.S., the economy suffered, and the U.S. stock market experienced four circuit breakers.

To address the economic issues in the U.S., the Fed began to print money massively, and in March 2020, it even proposed a plan for "unlimited money printing."

Because the U.S. dollar is the world's currency, the U.S. can use dollars to buy anything around the world.

Additionally, the U.S. government can spend heavily to distribute money to the American people to promote domestic consumption.

As a result, countries around the world began to experience shortages of goods and soaring prices.

It can be said that the U.S. is using the world's money to pay for its own misguided policies.

It can also be said that without the existence of the dollar hegemony, the U.S. government would have gone bankrupt a hundred times over.

It is worth mentioning that the U.S. is also using the world's money to fuel the Russia-Ukraine conflict, leading to a global energy crisis and another surge in global prices.

In 2022, global inflation reached its peak!

By then, several developing countries with weak foundations also went bankrupt one after another.

Seeing that the global economy could not save the U.S. economy from the dire situation, the Fed began to aggressively raise interest rates, planning to further empty the wealth of other countries.

Under the pressure of the dollar, countries around the world could only follow the dollar's pace and enter an aggressive interest rate hiking cycle.

By then, the global economy began to enter a recession cycle.

It can be said that before, whether it was the dollar's interest rate cuts or the dollar's interest rate hikes, countries around the world could only be forced to accept and follow, because you have no choice!

However, there is one country that is an exception, and that is China.

Precisely because of China's prudent monetary policy, huge production capacity, and vast domestic market demand, in this round of dollar interest rate hikes, the U.S. did not reap China's wealth.

This is why the U.S. would rather let its own problems go and restrict China's economic development.

That is because if it cannot reap China's wealth, the effect of the dollar's tidal cycle will be discounted, and how can the U.S. solve its own problems?

This is obviously not the result the U.S. wants!

Looking back, due to the aggressive interest rate hikes in recent years, the economies of countries around the world have begun to show signs of weakness.

To put it bluntly, inflation has been suppressed, but the economy has also begun to decline.

The European Central Bank is now predicting that the GDP of the 20 eurozone countries will grow by 0.8% this year, lower than the 0.9% forecast three months ago.

This economic growth value is a strong signal of economic recession!

Although Canada's second-quarter economic annualized growth rate is 2.1%, this is still driven by government spending and business investment, and consumption is still weak.

This is why Western developed countries have started to cut interest rates one after another.

Because if we don't cut interest rates, everyone will only be able to drink water.

However, the Fed has not yet cut interest rates, for two reasons: the first reason is that the U.S. is still betting that China's economy will collapse first and is making a final effort; the second reason is that the U.S. has not yet reached the expected level of inflation control.

But this does not mean that the U.S. economy is not in recession; these are two different concepts.

On this point, the reason why the U.S. is different from Western developed countries is that, looking at the world, it can be said that only the U.S. is now truly imposing trade barriers on China.

Without China's high-quality and low-priced goods, the U.S. economy will have to suffer more damage to truly control inflation.

It can be said that in the matter of the economic rivalry between China and the U.S., the U.S.'s allies are all calculating their own little accounts and are not following the U.S. all the way to the end.

This is the most fundamental reason why Western developed countries are not keeping their monetary policy in sync with the U.S. now.

Let's look at a few things and you will understand the reason.

First, when the EU imposed high tariffs on Chinese cars, some countries such as Spain, Germany, Sweden, and Hungary stood up to oppose it, and the EU's internal voice began to be inconsistent.

In other words, those European countries that support high tariffs actually have very little car trade with China, and everyone is just putting on a show.

Secondly, later on, Canada also joined the commotion, and we should also know that China's car exports to Canada only account for 1.0% of China's total car exports, which means we don't care about this trade volume at all.

In addition, the usually tough Australia has also softened towards China because of wine tariffs.

So, in the matter of the Sino-American rivalry, these allies of the U.S. are often more formal than substantial.

Let's prove this with data.

In the first seven months of 2024, the total trade value between China and the EU was 3.22 trillion yuan, an increase of 0.4%, accounting for 13% of China's foreign trade exports, and the EU is still China's second-largest trading partner.

Among them, China's exports to the EU increased by 1.5%, and imports from the EU decreased by 1.5%.

From this set of data, it is not difficult to see that although China is shifting its trade focus, the dependence of EU countries on Chinese goods is still very high.

So it can be said that the U.S. has calculated and calculated, and in the end, it has calculated itself.

Now that Western developed countries are not following the U.S.'s pace and have started a cycle of interest rate cuts, it can be said that they are forcing the Fed.

At this time, no matter how well the U.S. controls inflation, the Fed has to choose to be forced to cut interest rates.

Because if the dollar does not cut interest rates, then countries around the world will counterattack the U.S. economy, and the U.S. foreign trade exports will become a mess.

On this point, I have talked about it many times before, and I won't talk much about it here.

So, after the dollar cuts interest rates, will it carry out a second round of harvesting against our country?

Speaking of which, it didn't harvest the last time, so how can it harvest this time?

At this time, the dollar chooses to be forced to cut interest rates, which to some extent releases a large amount of liquidity to the world.

But this will only make countries around the world accelerate the process of de-dollarization under the leadership of China.