The US dollar, as the international currency, necessitates its use for settlement and reserve by countries aiming to develop international trade. This leads to a continuous accumulation of US dollars overseas, resulting in chronic trade deficits for the United States.

Post-globalization, the US has largely ceased producing material wealth, instead focusing on generating intellectual wealth and financial products. However, the number of Americans capable of excelling in high-tech and finance is limited. Coupled with the hollowing out of the US manufacturing industry over the years, this has led to extremely high unemployment rates and wealth disparity within American society.

In recent years, the global push towards de-dollarization has been driven by the US's exploitation of the so-called dollar hegemony to arbitrarily reap the wealth of other nations, causing discontent among many countries.

The essence of currency is credit, but who guarantees this credit? Developed countries demand currency stability, while developing countries seek increased money supply to stimulate their economies. How can this contradiction be reconciled?

Isn't the Euro an example? Yet, countries with uneven economic development share the same exchange rate, which is quite absurd. Southern European countries have essentially given up and rely on Germany and France for financial support. Ireland casually offers tax exemptions because it can benefit from subsidies from other countries. Greece, tired of the game, declared bankruptcy and had to be bailed out, as not doing so would have destroyed the currency's credibility. The Eurozone, already riddled with problems, should not be expanded globally.

Advertisement

Currently, many institutions in the US believe that, based on the current trend, it is estimated that the US will not continue to lower interest rates by 50 basis points in November. There is a possibility that the rate may only be reduced by 25 basis points, or there might even be no rate cut at all.

The purpose of the Federal Reserve's rate cut is to drive funds from other markets to the bond market, thereby addressing the embarrassment of long-term US Treasury bonds not being sold. However, the result has been that instead of rising, US Treasury bonds have fallen, and the market has seen through the Federal Reserve's clumsy tactics.

To achieve the desired outcome, further rate cuts are necessary, and they must be rapid. If the rate is reduced to 1%, the yield on long-term US Treasury bonds would still remain above 4%.

In a high-interest environment, the US Treasury is reluctant to issue more long-term debt, leading to a relative shortage of long-term debt compared to short-term debt. This is the fundamental reason for the inversion of interest rates. Therefore, the market is already pricing in that the Federal Reserve will pause its rate cuts.

However, judging from the Federal Reserve's recent statements, it will not choose to raise interest rates but will continue to lower them. In fact, I believe the probability of the Federal Reserve continuing to lower rates is quite high.Why do I say that the probability of the Federal Reserve lowering interest rates is high? Because the Federal Reserve is also out of options at the moment. In the face of the US economy, the US stock market is not important.

However, what worries the Federal Reserve is that if it continues to lower interest rates, the dollar will not only depreciate, but if the dollar depreciates too quickly, it will inevitably affect many countries using the dollar for international settlement, which will hurt the credit of the dollar. Moreover, a large amount of dollars will flow out of the United States, which is the last thing the Federal Reserve wants to see.

According to Goldman Sachs, it is expected that the Federal Reserve will lower interest rates by 25 basis points continuously from November 2024 to June 2025, and the final interest rate range will reach 3.25%-3.5%; it is expected that the European Central Bank will lower interest rates by 25 basis points in October, and then continue to lower interest rates by 25 basis points until the policy interest rate reaches 2% in June 2025.