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Hello everyone, today XM Forex will bring you "[XM Foreign Exchange Market Analysis]: Historical Mirror, the Federal Reserve may make a smart decision now". Hope this helps you! The original content is as follows:
XM Foreign Exchange APP News - The U.S. economy is currently at a critical crossroads: on the one hand, it is showing a positive trend of extremely strong resilience and inflation is gradually falling; on the other hand, it is a www.uniff.orgplex pattern of rapid weakening of the labor market and the interweaving of cyclical and long-term factors. The Federal Open Market www.uniff.orgmittee (FOMC) has cut interest rates by a total of 50 basis points this year, but it still faces a core question - is it necessary to further increase policy intensity? The key to solving this dilemma may lie in the historical www.uniff.orgparison between the 1970s and the 1990s. Through the www.uniff.orgparison in the above figure, we can see the key role that total factor productivity plays in the middle. Total factor productivity (TFP) is the core "intangible engine" that drives economic growth. It refers to the output growth brought about by technological progress, management innovation, and efficiency improvement after excluding labor, capital and other factor inputs. It played www.uniff.orgpletely opposite roles in the 1970s and 1990s - the TFP stagnation in the 1970s amplified the contradiction of "structural supply shortage" in the labor market, while the TFP explosion in the 1990s resolved potential supply constraints and reshaped the virtuous cycle of the labor market. To put it simply, the stagnation of TFP in the 1970s made it impossible to alleviate the problem of "insufficient people" in the labor market through "efficiency improvement" and could only fall into a vicious cycle of "stealing people → raising wages → inflation → robbing people again". The TFP outbreak in the 1990s replaced "labor input" with "efficiency improvement", which not only resolved potential supply constraints, but also allowed wages, employment, and inflation to form a virtuous cycle. This was also the core support for the "roaring 1990s" to achieve "low inflation, low unemployment, and high growth." Looking at the issue of employment and inflation this time, since we infer that the lack of jobs has led to a slowdown in employment, the Fed is inclined to continue to cut interest rates, and the action may be slower than the market expects.More "positive", but the pace will be unusually cautious. The core of the Fed's interest rate and QE policies will focus on "gradual easing + precise bottoming": on the interest rate side, moderately increase interest rates at a pace of 25BP to reduce corporate financing costs and stimulate job demand; on the QE side, the QT process will be suspended first, and if necessary, small-scale short-term government bond purchases will be used to lower long-term interest rates to support recruitment in capital-intensive industries. At the same time, policy www.uniff.orgmunication is used to clarify loose boundaries and guide capital flows to areas such as AI that improve TFP. Continued interest rate cuts will only moderately boost inflation (digesting idle production capacity and avoiding deflation). Since there is no rigid supply of labor, wages are difficult to rise significantly, and inflation is controllable in the long term. The key to policy is to adhere to data dependence, dynamically match demand gaps, and avoid blind easing or excessive tightening.
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Due to the author's limited ability and time constraints, some contents in the article still need to be discussed and studied in depth. Therefore, in the future, the author will conduct extended research and discussion on the following issues: