At a time when the Federal Reserve is still hesitant about the prospect of interest rate cuts, Marija Veitmane, a senior Wall Street figure and head of global market stock research at Dow Jones, warns that although the current US economic data appears strong, there are already many signs that high interest rates have put enormous pressure on the US economy. If the Federal Reserve does not cut rates soon, the US economy will inevitably collapse.
Will the Federal Reserve push the US economy into the abyss of collapse?
Since the Federal Reserve raised interest rates significantly, economists have been warning that a high interest rate environment could lead to an economic recession. However, data released in recent months indicate that GDP growth and the job market in the United States still seem to be rock solid. This has also led the market to give up hope of a rapid interest rate cut within the year and instead anticipate that the Federal Reserve will not soon relax monetary policy to avoid hindering inflation cooling.
Currently, the market generally expects that the Federal Reserve will maintain interest rate levels unchanged at its next policy meeting. According to the FedWatch tool of the Chicago Mercantile Exchange (CME), most investors expect only one to two interest rate cuts this year, which is far lower than the six at the beginning of the year.
On Tuesday Eastern Time, the Federal Reserve's Kashkari statement was just made, with the most likely outlook being to maintain interest rates unchanged for an extended period of time, and it is expected that the number of rate cuts this year will not exceed two.
However, State Street's Wittman warns that if the Federal Reserve does not relax monetary policy soon, an economic collapse is imminent. She pointed out that although the US economic growth data for the previous quarter looked good, the high interest rate environment has actually had an impact on the US economic growth momentum.
She said, "Delaying interest rate cuts has already had a practical impact on the economy. Therefore, although we have maintained economic stability to some extent at present, if we do not cut rates for a long time, it may cause economic problems in the future."
She predicts that if the Federal Reserve does not cut interest rates for a long time, the US economy will experience a "collapse". "We believe this is a very likely economic outlook."
The impact of high interest rates has become apparent
After the United States released multiple strong economic data at the beginning of this year, Wall Street investors began to have hope for the prospect of a "non landing" US economy - which is clearly the best scenario, where US inflation has decreased while economic growth remains strong.
But Wittman warns that there are now signs that high interest rates are putting enormous pressure on the US economy.
For example, American companies are being impacted by the rising cost of debt refinancing: Moody's data shows that the yield on AAA rated long-term corporate bonds rose to 5.28% in April. And higher borrowing costs also bring pressure to consumers. According to data from the Federal Reserve, the US commercial bank credit card interest rate rose to 21.6% in February, the highest level in at least 30 years.
In addition, Wittman pointed out that under the influence of high interest rates, Americans are currently "very frugal", which seems to have led to a decrease in retail spending in the United States. She mentioned the financial reports of consumer intensive companies such as Starbucks: Starbucks has just released its "weakest" quarterly performance after the pandemic and 2008 economic recession.
Wittman predicts that if the Federal Reserve does not cut interest rates soon, "we will start hearing more and more news about economic collapse."