Fed Pivots to Harvesting

Currently, Wall Street's serious doubts about the stability of the U.S. economy are sweeping through the U.S. financial markets, adding insult to injury during an already turbulent period.

The Federal Reserve's panic rate cut further implies that the worst is yet to come for the U.S. economy.

Markets dislike uncertainty, and the rapidly changing inflation dynamics in the U.S. are precisely creating this uncertainty.

For months, Federal Reserve Chairman Powell and his colleagues have been emphasizing that inflation remains stubborn and requires a longer period of tightening policies.

However, the sudden rate cut of 50 basis points at the interest rate meeting on September 19th indicates that the Fed has seen something behind the scenes that has panicked them, making the Fed's board members' promotion of a "soft landing" scenario at best a fantasy.

Although the latest U.S. economic indicators such as GDP growth, ISM manufacturing index, unemployment rate, and retail sales still show relative stability and resilience.

However, the Fed has access to real-time data, which may indicate a sharp decline in key economic sectors or severe financial stress, with cracks forming beneath the surface.

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Perhaps Powell and his colleagues know that the latest data suggest that a U.S. economic recession is not only possible but imminent.

This is also one of the reasons why Powell has to override internal disagreements and surrender to the market by making a significant rate cut, sending a new signal to the global market about a shift in the wealth cycle harvest and transferring and spilling over the risk of a U.S. economic recession.

The Fed's rare decision to make a significant rate cut is a clear signal that it has shifted its concern from inflation to unemployment, implying a worry about an impending U.S. economic recession.

This is why the BWC Chinese financial research team describes this move as the Fed's initiation of a dual harvest shift.

This signal indicates that the Fed may have overdone it in its previous aggressive rate hikes, and the rising expectation of a U.S. economic recession will also bring risks to the market.

By printing money to reduce the actual debt, the inflation and dollar devaluation that will be stimulated to climb again in the future may devour debt assets, indirectly harvesting the wealth of investors.

These latest analyses suggest that the Fed may have overdone it in its previous aggressive rate hikes, leading to the U.S. economy possibly evolving into a recession storm.

It is clear that the Fed is now preparing to sell off the huge financial bubble and soaring debt deficit risks accumulated since the subprime crisis, and the U.S. is about to "pass the buck."

Currently, the U.S. economy is falling into a recession, which may come regardless of whether the Fed is willing or not.

On a broader level, the recent depreciation of the dollar reflects investors' uncertainty about the health of the U.S. economy and concerns about the "U.S. debt default" conflict.

This factor has raised doubts among many Wall Street bigwigs and has sounded the alarm in the U.S. stock market, as well as in various employment sectors and the real estate field in the U.S. "Bond King" Gundlach said in a report on September 20th that the Fed's rate cut came too late, and the U.S. stock market will experience significant fluctuations before November.

Gundlach believes that "the Fed is far behind the situation, and the increasing number of unemployed people in the U.S. indicates that the U.S. economy has fallen into a recession," and points out that "there are many concerns about the weakness of the U.S. job market...

I see a lot of layoff announcements."

Subsequently, David Rosenberg, the president of Rosenberg Research, a top U.S. economist, also firmly believes that the U.S. economy will not escape a recession, and the Fed's significant rate cut cannot prevent this situation from happening.

Despite the Fed's significant rate cut, it is "as far behind the growth curve as it was behind the inflation curve two years ago."

At the same time, including Trump, former U.S. Treasury Secretary Summers, senior economist James Rickards, Musk, and CEOs of Wall Street investment banks such as Goldman Sachs and JPMorgan Chase, have also issued warnings about U.S. economic and inflation concerns.

This indicates that the fate of U.S. debt assets is becoming increasingly clear.

On a broader level, the recent depreciation of the dollar reflects investors' concerns about the pace of U.S. economic growth and the "U.S. debt default" conflict.

According to a survey conducted by U.S. financial company Affirm last week, about 60% of Americans believe that the U.S. economy is in a recession.

This also makes Wall Street traders work hard to deal with the intensified divergence of the Fed's rate cut pace, the tension of the U.S. election, the tension of the situation in the Middle East, and concerns about overvaluation of U.S. assets, preparing to face a fiercer storm.

In this regard, Bridgewater Fund founder Dalio warned in a report on September 20th that the Fed needs to keep interest rates high enough to attract U.S. creditors without putting too much pressure on the U.S. Treasury's debt repayment.

This "balancing act" will be very difficult.

He predicted that "the U.S. will increasingly rely on monetized debt and take a similar path to Japan.

The U.S. debt crisis is imminent."

This has also led to U.S. allies such as Japan, Saudi Arabia, France, the UK, Belgium, and Germany to start de-dollarizing in different fields, counterattacking the dollar, and continuously selling U.S. Treasury bonds to reduce the risk of exposure to the U.S. For example, according to the latest International Capital Report released by the U.S. Treasury Department on September 19th, in July, the U.S.'s overseas creditors sold a total of $43 billion in U.S. Treasury bonds, among which Japan, the UK, Belgium, France, and India, these major U.S. allies, jointly sold $36.7 billion in U.S. debt, leading the trend of counterattacking the U.S. harvest shift to pass the buck on debt deficit risks.

Since 2023, these U.S. allies have sold a total of $356 billion in U.S. debt.

For specific data details, please refer to the figure below.

This indicates that under the expectation of a major liquidation counterattack by U.S. economic allies such as Japan and France against the high valuation of the U.S. stock and bond markets, the moment when the U.S. faces a debt ceiling crisis again at the beginning of 2025 is imminent, and the U.S. is counting down to default, which will directly affect the repricing of trillions of dollars in U.S. Treasury bonds, and it may evolve into another storm.

Goldman Sachs analysts believe in a research report published on September 19th that it is highly likely that the U.S. authorities will shut down due to disagreements on fiscal debt spending on October 1st this year.

Due to the current chaos of the U.S. election and huge disagreements in Congress on the expenditure issues of the 2025 fiscal year, the analysis said that the risk of the closure of some federal departments may continue until after November, when both sides will start to show their cards.

This may hit the U.S. financial market and the new bond issuance plan of the U.S. Treasury, making investors' confidence in the U.S. Treasury bond market fragile.

This indicates that the U.S. may face a debt default after the debt ceiling limit is exhausted in January next year, and this is also one of the logics why the Fed may adopt a significant rate cut for harvesting.

Subsequently, Wall Street prophet Peter Schiff further analyzed in a report published on September 20th that the Fed has made a major policy mistake, the game is over, and the Fed's surrender-style rate cut means a "U.S. economic disaster."

Following the rate cut will be the return of quantitative easing and high inflation, which will produce more debt and deficits, making the recession more severe.

Combining the historical experience of the U.S. having two technical defaults, under the background of the U.S. issuing the latest harvest shift signal, it will speed up the speed of agile funds turning, and at least may cause these tens of trillions of dollars of funds participating in this time to force the Fed to adopt aggressive rate cuts to withdraw from the U.S. asset price market within a few years.

For example, Bob Michele, a portfolio manager at Morgan Asset Management, believes that the scale of U.S. money market funds has doubled to $7 trillion in the past five years.

However, under the expectation that the Fed will start a rate cut cycle and continue to shrink the balance sheet, the yield may drop to 3% or even lower, which will make some funds look eastward to avoid losses in this hurricane-style U.S. wealth harvest shift feast storm.

For another example, according to a report updated and released by the U.S. real estate data research company Real Capital Analytics on September 20th, a large number of sellers of U.S. residential and commercial office buildings, including Chinese buyers (companies), are also selling houses to facilitate transactions and start a big retreat.

The data shows that from the second quarter of 2022 to now, they have net sold at least $37.2 billion worth of U.S. real estate, which is 15 times the purchase volume during the same period, with commercial office buildings accounting for the majority.

This indicates that the Fed's emergency rate cut this time may be a catalyst for a broader market repricing of the U.S. asset price market, in order to alleviate the blow to its asset-liability sheet on the brink of collapse.

Now that the Fed is about to press the flood beast's printing press gate while continuing to harvest and recover this money through balance sheet reduction, Wall Street may have to prepare for a larger scale of turmoil in the U.S. financial market.

What kind of financial storm will be experienced in the future, perhaps, no one can predict, and no one can run away.

When the Fed starts to panic, bets on all credibility, and turns sharply, readers should pay attention.

In the record-breaking uncertainty, this indicates that the two major prophecies of "the U.S. facing a historical debt default" and "U.S. economic recession" have been fulfilled and are being "self-fulfilled," and this is also one of the logics why the U.S. allies are now starting to counterattack the dollar and the renminbi is returning like a king.