● Powell’s Rate Cut Tease
2024 Global Interest Rates, Current and Future of Monetary Policy – A Comprehensive Look at Trade Wars, Central Bank Roles, and Economic Outlook
Are you curious about how interest rate cuts, central bank monetary policies, trade wars, economic growth rates, and asset markets will unfold in the global economy going forward? This article provides a detailed and specific chronological overview of where each issue stands, how it is expected to progress, and what investment and asset strategies should be established accordingly. It also illustrates how money is actually printed with extreme realism. Check out the latest essential insights for economic blogs here!
1. Recent Global Interest Rate Policies – The U.S. Federal Reserve and the Bank of Korea in a Fog
The U.S. Federal Reserve (Chairman Powell) has recently hesitated to make interest rate cuts. This is due to the aftermath of the trade war (U.S.-China trade conflict), policy uncertainty, and the difficulty in predicting how these policies will affect the macroeconomy (growth rate, inflation, financial stability).
Currently, the U.S. benchmark interest rate is 4.5%, inflation is around 2.5%, and the IMF projects this year’s economic growth rate to be below 2%. Therefore, many believe that the benchmark interest rate is excessively high.
The situation is not much different in Korea. The economic growth rate is projected to be in the low 1% range, consumer prices are in the 2% range, and the benchmark interest rate is 3.5% (based around 2024). Therefore, interest rate cuts are needed, but caution is inevitable as both real economic safety nets and the stability of prices and the financial system must be considered simultaneously.
2. The Essence of Policy Uncertainty – Trade Wars, the Dilemma of Central Banks
There are two axes of policy uncertainty. One is the structure in which tariff policies and monetary policies between Trump and Powell conflict with each other. Trump wants interest rate cuts, but Powell’s position is that policy decisions can only be made once the uncertainty of the trade war is resolved.
As the credibility of the United States weakens due to the trade war, the U.S. dollar weakens, demand for U.S. Treasury bonds decreases, and investors around the world are reluctant to prefer dollar bonds. This is amplifying uncertainty in the direction of global interest rates and investor sentiment (market sentiment).
3. Central Bank’s Money Creation Mechanism – U.S. Federal Reserve, Treasury, Commercial Banks
In the modern economy, the central bank is the entity that prints money. Based on the U.S., three institutions sequentially influence the flow of money:
- U.S. Treasury – Issues Treasury bonds (bonds) if there is a shortage of necessary funds
- Commercial Banks – Purchase government bonds (Treasury bonds) to lend money to the government
- Federal Reserve (Central Bank) – Creates new money in the computer system to purchase commercial banks’ Treasury bonds (i.e., provides cash. In this process, money is created by ‘number entry’ rather than actual currency issuance)
With this supplied cash, commercial banks provide more loans to companies and households, and as this process is repeated, the ‘money supply’ eventually increases or decreases. This is the reality of contractionary (interest rate hike) and expansionary (interest rate cut) monetary policies.
In the end, lowering interest rates increases lending and induces a boom in asset markets such as real estate (pulling future consumption), while raising interest rates decreases lending and slows down the economy and investment. This method (contraction) was also used during the period of a 9.1% surge in the U.S. CPI (consumer price index) in 2022.
4. Interest Rates, Inflation, Monetary Policy – How Are They Actually Determined?
Central banks set policy interest rates by adding a certain range (±1~2%) to ‘expected inflation’. This is not just a simple numerical adjustment, but comprehensively reflects various economic and financial indicators and investor sentiment.
The higher the benchmark interest rate, the greater the government and private loan burden and the higher the bond interest rate, which also burdens national finances (even the United States’ interest payment costs are at an all-time high). Trump wants to reduce the burden of fiscal management with low interest rates. However, interest rate cuts cause other problems such as stimulating inflation, financial instability, and soaring asset prices.
5. Trade Wars and the Global Economy – Another Variable in Interest Rate Policy Decisions
If the trade war intensifies, investment sentiment, confidence in U.S. assets, and the stability of global supply chains will all be shaken. Each country is strengthening separate trade agreements such as FTAs and CPTPP. The U.S.’s ‘isolation policy’ causes a weak dollar and weakened Treasury bond purchases. If major countries around the world ease tariff conflicts through negotiations, then the Fed’s interest rate cut will finally come into sight.
6. Real Economy and Asset Market – Differently Moving Structures
The real economy is the ‘basic flow’ of jobs, production, and consumption. The asset market is much more sensitive to expectations and fear (psychology). Therefore, investors must thoroughly distinguish and understand the two structures: “The economy and the asset market are different.” For example, even if economic indicators are bad, if expectations are alive, the asset market such as stocks/real estate can show strength.
7. Second Half of 2024 – Interest Rate, Monetary Policy, Investment Strategy Scenarios
If the trade war subsides, major central banks such as the U.S. and Korea are more likely to signal interest rate cuts while watching the flow of indicators (prices, employment, growth rates). In particular, the Fed’s basic position is to ‘wait and see’ until the fog clears, but market volatility can be maximized when the situation changes. At this time, major changes can be expected in both the asset market and the real economy. If you are an investor, it is essential to monitor this timing and policy decisions in real time!
< Summary >
- Signals of interest rate cuts by major countries such as the U.S. and Korea are expected to become more certain when the trade war subsides
- Central banks control the entire flow of markets, assets, and the economy with policy interest rates
- The real economy (growth rate/employment) and the asset market (expectation/fear) move differently, so be sure to distinguish them
- Trade wars, U.S. credibility, and global trade agreements are major variables in short-term interest rate fluctuations and dollar demand
- For the second half of 2024 investment strategy, rapid portfolio response is required along with real-time policy and indicator checks
[Related Articles…]
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● Trump’s Tax Cuts- Healthcare Cuts
<h4>May 14 Wall Street AI News: Goldman Sachs Recession Relief, Trump's Middle East Visit, Complete Summary of US Politics/Business/Stock Market Issues</h4>
<h3>Key Points to Note in Today's Article</h3>
1. Downgrade of US recession forecasts by major Wall Street securities firms such as Goldman Sachs and JP Morgan, along with a shift in the global economic atmosphere due to easing US-China trade tensions.
2. Trump's large aircraft contract during his Middle East visit, controversy over luxurious personal aircraft gifts, domestic political/legal opinions in the US, and future impact.
3. Controversy over the reintroduction of US tax cut bills and issues of welfare budget cuts, as well as local community reactions and the outlook for changes in welfare systems.
4. Performance, stock prices, and market reaction analysis of leading AI/infrastructure stocks CoreWeave and Cisco.
5. Comprehensive summary of US stock market closing trends and major issues led by AI semiconductor/tech stocks.
<h3>1. Goldman Sachs & JP Morgan Lower US Recession Forecasts and Expectations for Interest Rate Cuts</h3>
- Goldman Sachs lowers US recession forecast from 45% to 35%. JP Morgan also mentions a recession probability of less than 50%.
- The US-China trade tariff truce is the biggest factor in easing recession concerns. Expectations for improved investment sentiment due to easing global trade tensions.
- Goldman Sachs announces expectations for a total of three interest rate cuts in 2025 and 2026. Forecasted timing for additional rate cuts in March and June next year.
- Also raised US GDP growth forecast for this year by 0.5%p to 1%.
- Overall, expected to impact global investment, global economic growth, and monetary policy shifts.
<h3>2. Trump's Middle East Visit: Controversy over Mega-Deals and Expensive Gifts</h3>
- Trump signs a $200 million+ deal with the Qatari government to purchase Boeing aircraft (200+ units). Forecasted impact on the US aviation industry and employment.
- The Qatari royal family gifts Trump a luxurious private jet worth $400 million (560 billion won). Sparks controversy over violation of foreign gift laws.
- Criticism and legal challenges from the US political community (both Democrats and Republicans) over the issue of a sitting president receiving expensive gifts from abroad.
- Concerns amplify regarding the safety/security of the aircraft and the possibility of foreign influence. Possibility of future legal review and investigation.
<h3>3. Controversy over the Introduction of US Tax Cut Bills & Welfare Budget Cuts</h3>
- Tax cut bills promoted during the Trump era partially pass in the US House of Representatives. Includes numerous provisions such as increased deduction for local taxes, tax credits for the elderly, and exemptions for tips/overtime pay.
- Criticism of new tariffs and social welfare cuts to secure funding for tax cuts. Structure that disadvantages low-income/working-class individuals and benefits high-income earners/property owners.
- Trump forecasts $880 billion in welfare budget cuts over the next 10 years, including Medicaid. Concerns over 8.6 million medical insurance recipients losing eligibility.
- Conflict between Obamacare and social welfare policies. Expected increase in medical expenses/expansion of insurance gaps and increased income inequality/welfare controversy in the US.
<h3>4. AI/Tech Leading Stocks Performance: CoreWeave vs Cisco</h3>
- Cisco's first-quarter revenue increased by 11% ($14.15 billion). Thanks to large orders from AI infrastructure/web companies.
- News of CFO's resignation and earnings may trigger short-term stock price volatility.
- CoreWeave's quarterly revenue grew by 420% year-over-year, far exceeding market expectations. Secured a mega-contract with OpenAI worth $11.9 billion over 5 years.
- Despite the surge in sales, net losses expanded ($314.6 million) due to IPO-related costs/increased spending. Growth potential/deficit structure highlighted as investment points.
<h3>5. US Stock Market Closing and Major Issues</h3>
- S&P 500 and Nasdaq close higher (up 0.1% and 0.72% respectively). Dow Jones down 0.21%.
- Gains in AI chips/semiconductors (Nvidia, AMD, Micron) drive the market. Nvidia surges 5.6% on the news of an AI chip supply agreement with Saudi Arabia.
- Microsoft's $80 billion investment plan stimulates semiconductor demand and drives the upward trend.
- Global economic outlook, artificial intelligence growth, tech stock performance, and policy changes are noted as key variables that will continue to influence market direction.
<h3>6. Additional Service Information: Wall Street World Telegram</h3>
- Free real-time alerts for corporate performance, market capitalization, AI-selected 52-week high stocks, etc. are provided on the Wall Street World channel.
- A channel where you can efficiently check economic/stock market news and corporate information.
<h3>< Summary ></h3>
- US stock market/financial big players reduce recession concerns and expect interest rate cuts.
- Trump's large-scale aircraft contract and controversy over expensive gifts during his Middle East visit.
- Public anxiety highlighted due to changes in US tax policies and welfare budget cuts.
- AI/Tech companies CoreWeave/Cisco mega earnings, investors focus.
- Short-term bullish atmosphere in the US stock market amid strength in AI/semiconductor-related tech stocks.
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Included SEO Core Keywords: Recession, interest rate cut, stock market, AI, welfare budget
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*YouTube Source: [Maeil Business Newspaper]
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