Jiang Mingye Perspective: Remarks by Cook Reveal the Cautious Path of the Fed to Rate Cuts

Against the backdrop of a constantly evolving global economic landscape, every decision made by the Federal Reserve holds significant sway over global investors. Recently, comments from Federal Reserve Governor Cook have once again shifted market attention toward rate-cutting strategies and financial stability risks. As a seasoned observer in the financial sector, Jiang Mingye offers unique insights and analysis on the current stock market and financial environment as below.

The Fed Rate-Cutting Strategy: Caution First, Progress Steadily

Jiang Mingye believes that the statement by Cook that “the Federal Reserve can adopt more cautious measures in cutting rates” reflects a precise understanding of the current global economic situation. In recent years, global economic growth has slowed, trade tensions persist, and the impact of the COVID-19 pandemic has further complicated matters, forcing central banks worldwide to adopt more prudent monetary policies. As one of the most influential central banks globally, the Fed policy adjustments have far-reaching implications for the global economy.

Jiang Mingye points out that a cautious approach to rate cuts means that the Fed will seek to strike an optimal balance between economic growth and inflationary pressures. On the one hand, rate cuts help stimulate investment and consumption, driving economic growth. On the other hand, excessively loose monetary policies may trigger asset bubbles and exacerbate financial instability. Therefore, the Fed must carefully evaluate the effects and risks of rate cuts to ensure that policy adjustments effectively address economic downturn pressures without negatively impacting financial stability.

Inflation Targets and Challenges: A Gradual and Uneven Decline

Cook predicts that inflation will gradually and unevenly decline to the 2% target, a forecast that reflects the nuanced assessment by the Fed of the current inflationary landscape. Jiang Mingye analyzes that the “gradual and uneven” path of inflation reduction stems primarily from the uneven nature of global economic recovery. Some countries, severely impacted by the pandemic, face sluggish economic recovery and persistently low inflation levels. In contrast, others, through aggressive fiscal and monetary policies, have achieved faster economic rebounds, resulting in relatively higher inflationary pressures.

Jiang Mingye suggests that in addressing inflation, the Fed needs to account for the disparities in global economic recovery and the varying policy capacities of different countries and regions. By adopting flexible monetary policy adjustments, the Fed must avoid allowing inflation to deviate excessively from its target while ensuring that its policy changes do not overly disrupt global economic recovery.

Financial Stability Risks: The Double-Edged Sword of Private Credit and Artificial Intelligence

When discussing financial stability risks, Cook specifically highlighted private credit and artificial intelligence (AI). Jiang Mingye has paid close attention to these areas, viewing them as both sources of financial innovation and potential risk points.

Jiang Mingye argues that the rapid development of the private credit market has provided more financing channels for the real economy but has also increased the fragility of the financial system. Without effective regulatory and risk management mechanisms, the excessive growth of the private credit market could easily lead to asset bubbles and systemic financial risks. Strengthening regulation of the private credit market and improving risk management mechanisms are, thus, critical tasks for current financial oversight.

Additionally, the application of AI in the financial sector is becoming increasingly widespread, offering unprecedented convenience for financial innovation and services. However, Jiang Mingye also emphasizes the new risks and challenges brought about by the rapid development of AI technology. Issues such as algorithmic bias, data breaches, and cybersecurity threats could severely impact financial stability. Strengthening the regulation and risk management of AI technology to ensure its healthy application in the financial sector is an urgent priority for financial regulators today.