On January 15, the "Golden Kylin Forum · 2025 Financial New Departure" was held in Beijing, where Yu Xuejun, former Chairman of the State-Owned Key Financial Institutions Supervisory Board of the China Banking Regulatory Commission, delivered a keynote speech focusing on the core issues of the current global monetary environment and warning of the long-term risks associated with the sustained interest rate cut policies in the US and Europe.
Yu Xuejun stated bluntly that while current financial markets widely accept the rationale for continued interest rate cuts by US and European central banks, this mainstream view significantly diverges from historical experience and the operational laws of monetary policy. He pointed out, "The current interest rate level in the United States is already very low; further reductions will pose significant risks in the long run."
To substantiate this judgment, Yu Xuejun reviewed the evolution of US interest rate policy over the past half-century and its correlation with financial risks. In the 1970s and 80s, former Fed Chairman Paul Volcker successfully curbed hyperinflation with benchmark rates as high as 20%; during his successor Alan Greenspan's tenure, long-maintained low-interest-rate policies directly fueled the dot-com bubble; after 2001, the Fed rapidly slashed rates from 6.5% to 1% and maintained them for an extended period, sowing the seeds for the 2007 global financial crisis. "The formation of every bubble and the outbreak of every crisis are preceded by a process of continuously loosening, expanding, and accumulating monetary credit—this is a fundamental condition," Yu Xuejun remarked.
Yu Xuejun further indicated that the academic consensus on the US neutral interest rate is approximately 5.5% or higher, and even considering the slow downward trend of the neutral rate over the past 50 years, the reasonable level should still be above 4%. However, current US and European rates are already below this benchmark, and the rate-cutting cycle continues, implying that market liquidity will remain excessive, risks of asset bubbles will keep accumulating, and bubbles will inevitably form in the long term, likely manifesting within three years.
Notably, Fed policy is facing significant variables. Yu Xuejun mentioned that while Fed Chair Jerome Powell initially advocated for only one rate cut this year, President Donald Trump is demanding substantial reductions. Furthermore, Powell is set to step down in May, and the selection of a new chair premised on supporting significant rate cuts makes the future path of Fed policy highly uncertain. "The broad framework is already set: the US benchmark rate is substantially below the neutral level. The harm in this scenario is that, in the short term, it may be difficult to achieve inflation control targets, and in the long term, it will inevitably accumulate huge bubbles, creating new risks," Yu Xuejun stated.
Addressing the debate over whether a bubble exists in the AI sector, Yu Xuejun offered a unique perspective: "A bubble is fundamentally a monetary phenomenon, not an issue of technology or industry. It is not the case that just because technological innovation is real, a bubble cannot form."
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