Due to the slow cooling of inflation in the United States since the beginning of the year, several Federal Reserve officials have recently taken turns releasing signals suggesting that the Federal Reserve is still not in a hurry to cut interest rates in the short term. This has raised concerns among Moody's Chief Economist Mark Zandi.
Zandi warned that it is best for the Federal Reserve to cut interest rates as soon as possible, because if interest rates do not fall, the US economy will face the risk of "collapse".
Hidden Crisis Under Strong Economic Data in the United States
Zandi stated in an interview that if the Federal Reserve does not cut interest rates in the coming months, there may be adverse consequences. Zandi warns that if the Federal Reserve maintains interest rates at current levels, it will increase the risk of economic recession and may expose other loopholes in the financial system.
"These interest rates have a 'corrosive' effect on the economy. They can drag down the economy and at some point, some places may collapse. The risk of doing so is to damage the economy and lead to a recession." "If I were the king today, I would really cut interest rates at this time because I do believe this approach would help soothe the economy."
Zandi pointed out that although the current strong momentum of the US economy seems to indicate that the US is still far from recession, in reality, high interest rates have begun to have an impact on the economy.
He pointed out that due to rising borrowing costs leading to slow loan growth, the credit situation in the United States is being "eroded", which may put pressure on banks' balance sheets.
Zandi also mentioned the collapse of regional banks in the United States last year: the sudden collapse of Silicon Valley banks overnight triggered a brief banking crisis and led to the collapse of two other banks.
Zandi said, "Against the backdrop of sustained high interest rates, I am worried that similar things will happen again."
There is still no hope of a short-term interest rate cut
In fact, more than one market commentator and economist has recently warned about this risk. Billionaire investor Barry Sternlicht even predicts that the United States may face the risk of one bank failure per week, partly due to the impact of high interest rates on commercial real estate loans.
But Federal Reserve officials still seem to ignore these warnings and are prepared to maintain higher interest rates for a longer period of time.
In the past three months, housing prices in the United States have risen more than expected, while the inflation rate reached 3.5% in March. Several Federal Reserve officials have emphasized that the Federal Reserve is seeking more evidence that inflation is falling towards its target of 2%.
The market's hopes for a significant interest rate cut this year have also been shattered: according to the FedWatch tool of the Chicago Mercantile Exchange (CME), investors expect only one to two rate cuts by the end of 2024, far below the six rate cuts predicted at the beginning of this year.
Zandi predicts that the Federal Reserve may have to wait for two to three months before easing monetary policy, as Fed officials are waiting for inflation data to cool down.