Unmasking the Bubble Economy: The US Fed, Rate Cuts, and the Illusion of Low Inflation

Opinion | The US Federal Reserve is actually managing a bubble economy

A decrease in interest rates by the US central bank could maintain high asset prices, a crucial factor in the US economic structure.

Discussions regarding a reduction in the Federal Reserve's interest rate have served as a safety net for asset markets over the past two years. At the beginning of the year, there were anticipations for up to six reductions, although these predictions have since varied. The Federal Reserve has been supportive of this, aiming to maintain high asset prices, a crucial component of the US economic framework.

Joking aside, there's a limit to everything. When the artificial intelligence sector appeared shaky last month, the financial markets were anticipating reduced interest rates to calm fears. The Federal Reserve is in agreement with this sentiment; it aims to instill in investors the assurance that it will always provide support.

Expectations of interest rates are typically surrounded by complex debates on striking a balance between job growth and inflation. However, don't be misled by the promotional talk. When an economy is inflated like a massive bubble, both aspects are influenced by the inflation of assets. The asset market is the unaddressed significant issue. Inflation is the repercussion it gives rise to.

The claim of low inflation in the United States has proven to be quite misleading. Over the past twenty years, the average cost of homes in the US has increased annually by 3.6 percent, while healthcare expenses and the cost of new vehicles have each seen yearly increases of 3 percent. These costs have consistently shown an upward trend, suggesting ongoing inflationary stress.