What else is haunting FED and market?

Does the fact that the stock market has remained strong since 2023 mean that the risk of recession is reduced? Or is it because the Fed continues to maintain tightening policy (raising interest rates) even as inflation is moderating?

Now that bank interest rates are not at a level that will bring the economy down enough to shift to a neutral (or accommodative) policy, and the U.S. economic news remains solid, the FED must continue to keep rates high to force credit crunch to the limit. The dilemma facing the governors is: when will inflation return to 2-3%, while interest payments as a percentage of total spending in the fiscal deficit is increasing (chart).

In my view, the FED needs to carefully balance the needs of economic growth and inflation, and adjust policy appropriately to avoid the adverse effects of excessive tightening or easing on the economy.

Personally, I think the current lending rate is either too high or too low, depending on which way you look at it. High interest rates have been questioned because long-term interest rates cannot be higher than the rate of inflation or the economy's GDP growth rate without affecting the U.S. government's ability to service its debt. However, if interest rates are too low, there is no telling when inflation will return to 2%, and the current narrative that the "cycle of interest rate increases is over" has not yet become a certainty. In this "dilemma" situation, there is no shocking event to give the Fed the reason to cut interest rates.

Don't forget: the rate hike cycle is not quite over. The cycle could end at.

First, let's consider the impact of U.S. deficit spending on the economy. Even though the U.S. has been in deficit for nearly 20 years, the likelihood of bankruptcy remains small. Therefore, I personally believe that a big drop in the dollar and a reversal of confidence in deficit spending is the least likely scenario.

Second, a credit crisis with deteriorating creditworthiness is worrisome, and the problems caused by the rapid rise in interest rates in 2022 are surfacing in 2023, causing banks to refuse to lend. While last year's high-growth equity ARKK, cryptocurrency, SPAC and meme stocks have collapsed, they have not yet turned into a widespread credit crisis, but 2023 will require vigilance. Therefore, the crisis is still moderately likely.

Third, a further stock market collapse as corporate earnings per share problems emerge during the recession, which is the most likely of the three.

I think the Fed needs a stronger reason than slowing inflation to cut interest rates, and the simplest reason is that the stock market keeps falling. In fact, the Fed and investors in the market want to cut interest rates as soon as possible, because this will reduce the interest payments on the national debt, maintaining the solvency of the Treasury.

Even though the market has had upward momentum in stocks in recent years, I still don't plan to put a lot of new money into the stock market today because as long as the Fed doesn't cut interest rates, the stock market won't see meaningful growth. However, if the stock market doesn't fall, the Fed won't cut rates either! This cycle continues to haunt us as investors.

@MillionaireTiger @TigerStars @CaptainTiger @MaverickTiger 

# Macro Trend

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  • extractoi
    ·2023-02-07
    i don't think that the further stock market will collapse
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  • Meet0
    ·2023-02-07
    i am so agree with you that he rate hike cycle is not quite over.
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  • JesseRW
    ·2023-02-07
    as the stock market keeps falling, US market will some adjustments
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  • feelond
    ·2023-02-07
    high rates really means something, FED did great job
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  • historyiong
    ·2023-02-07
    the credit crisis should be considered seriously
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  • Jason1616
    ·2023-02-07
    Invest safe
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  • Awesomelee
    ·2023-02-07
    Ok
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  • Shahfarid
    ·2023-02-07
    Ok
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  • Wai0326
    ·2023-02-07
    👌🏻
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  • Tigaa
    ·2023-02-07
    ok
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  • TonySiang
    ·2023-02-07
    Wohhh
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  • gunsonfire
    ·2023-02-07
    O
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  • pandajojo
    ·2023-02-07
    nice
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  • AllanHuat
    ·2023-02-07
    👍
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  • Hariharimiao
    ·2023-02-07
    ok
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  • sujjup
    ·2023-02-07
    👍
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  • chooi
    ·2023-02-07
    ok
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  • Ivanswh
    ·2023-02-07
    👍🏼
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  • nancy88
    ·2023-02-07
    like
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  • STARBUY
    ·2023-02-07
    ok
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