Analyzing the Core Contradictions of the U.S. Economy
In this issue, we focus on the most acute structural contradictions currently plaguing the U.S. economy, and how these contradictions will shape the future direction of interest rate policy. Many people harbor unrealistic expectations that the Federal Reserve will cut interest rates, believing that a simple rate cut will solve all problems. This view completely overlooks the fundamental paradigm shift that has already taken place in the global economy.
Contradiction 1: The Political Trap of Employment Data
The Federal Reserve’s monetary policy decision-making framework was originally based on two core objectives: controlling inflation and stabilizing employment. Recently, Powell has clearly signaled that the Fed’s policy focus has shifted from fighting inflation to preserving jobs; in the short term, as long as employment data weakens, interest rate cuts will become an inevitable option.
However, this logic now faces a fatal disruption: Trump’s direct interference in the employment statistics system. Previously, the U.S. Bureau of Labor Statistics significantly revised employment data downward, directly angering Trump, who promptly fired the bureau’s director and replaced him with his confidant, E.J. Anthony. Upon taking office, the new director immediately aligned himself with Trump, even proposing to switch the monthly employment report to a quarterly release. Although the monthly reports have not yet been officially discontinued, the signal is already very clear: employment data during Trump’s term must look “good,” and any weak data that might affect his re-election prospects will not be allowed to be published.
If employment data is indeed artificially embellished according to Trump’s demands, Powell will find himself in a dilemma. He had originally planned to initiate rate cuts citing weak employment, but if falsified data shows an unusually robust labor market, the probability of rate cuts in October and December will drop immediately. Worse still, if commodity and service inflation resurge during the same period, the Fed will find itself in a no-win situation. This is the most absurd reality of the current U.S. economy: political interference has directly undermined the factual basis of monetary policy decisions.
Contradiction Two: Can Rate Cuts Really Save the Economy?
The vast majority of market analysis focuses on the magnitude and pace of rate cuts, yet few question a more fundamental issue: in the current global economic environment, are rate cuts even effective? What we are facing now is not a conventional economic cycle fluctuation, but five major structural paradigm shifts—none of which can be resolved by rate cuts:
First, globalization has completely reversed course; the global trade system is fragmenting into multiple independent blocs, and the process of deglobalization has entered the transition phase from its early to mid-stage; Second, the bond markets of developed nations and the current international monetary system have plunged into an irreversible crisis, with debt levels having exceeded the safety thresholds defined by traditional economic theory; Third, global geopolitical risks continue to rise; the post-Cold War security order is rapidly disintegrating, and the rivalry among major powers has reached a fever pitch; Fourth, the AI technological revolution is fundamentally reshaping traditional labor relations, educational systems, and employment structures, with an impact far exceeding that of any previous industrial revolution; Fifth, populist and far-right parties are coming to power in large numbers worldwide, and political decision-making is becoming increasingly short-sighted and irrational.
Never mind cutting interest rates by 1.5 percentage points—even if rates were reduced to zero, these structural problems would not improve in the slightest. Moreover, the transmission mechanism of monetary policy itself involves a very long chain: after a rate cut, businesses, households, or the government must actively increase leverage to generate new demand; only after demand rises will businesses expand production and increase hiring; and only when improved employment leads to higher incomes can consumption be further stimulated, creating a virtuous cycle. If any link in this chain breaks down, the effectiveness of monetary policy will be significantly diminished.
The reason interest rate cuts were effective in the past was largely due to U.S. monetary hegemony, which allowed the U.S. to shift costs globally. But now that U.S. monetary hegemony has been significantly weakened, relying on interest rate cuts to solve all problems will ultimately push the U.S. into a liquidity trap—where monetary policy remains persistently loose, yet the economy fails to recover, and inflation remains stubbornly high.
The Trump administration’s current “have your cake and eat it too” policy logic essentially amounts to postponing all contradictions, leaving the next administration with a pile of fundamentally unsolvable problems. Short-term policy stimulus cannot buy long-term economic prosperity; structural problems can ultimately only be resolved through structural reforms—and this is precisely what the current U.S. political system is least capable of achieving.