In the global financial system, the Federal Reserve has always held a pivotal position.

As the central bank of the United States, the Federal Reserve influences global capital flows, interest rate levels, and economic trends through its monetary policy.

However, the interest rate cut announcement in 2024 has put this dominant position in jeopardy and may even trigger an unprecedented financial turmoil.

This shift is not only the result of internal disputes within the Federal Reserve but is also closely related to the complex geopolitical environment worldwide.

How will the Federal Reserve's policy changes affect the global economy?

And does all of this indicate the decline of American financial hegemony?

Advertisement

The "harvesting" logic of the Federal Reserve over the past few decades has seen it raise interest rates to attract global capital in response to financial crises and economic uncertainty.

Whenever there was turmoil on the Eurasian continent, such as during the Cold War, financial crises, or geopolitical conflicts, capital would quickly flow to the United States in search of safety and stable returns.

This "harvesting" logic has been repeatedly verified throughout history: in 1982, during the Falklands War in the UK, Latin American countries rushed to the U.S. capital market out of panic; in 1997, during the Asian financial crisis, capital quickly withdrew and turned to the United States; in 1999, during the Kosovo War, capital also sought refuge in the United States.

In August 2023, Powell clearly stated in his speech, "The time to adjust monetary policy has come," which is undoubtedly a self-reflection on the Federal Reserve's past interest rate hike strategy.

According to data from the International Monetary Fund (IMF), in 2022, the amount of global capital flowing to the United States reached trillions of dollars, and behind all this is a profound grasp of geopolitical crises.

With the escalation of the Russia-Ukraine war and the Israel-Palestine conflict, the situation has undergone subtle changes, and the logic of capital flows has begun to face challenges.

The lessons of history and future prospects: Recent economic data show that the Federal Reserve's policies not only affect the economic situation in the United States but also have a profound impact on the global economy.

According to the Federal Reserve's report, in the first half of 2023, the U.S. economic growth rate was 2.4%, while the global economy faced a slowdown.

Against this backdrop, the Federal Reserve's interest rate hike policy is seen as a tool for "harvesting" global capital.

Continuous interest rate hikes did not produce the expected positive effects but instead triggered widespread questioning at home and abroad.

In 2022, Ukraine's counter-offensive increased global attention to geopolitical risks, and capital sought a safe haven in uncertainty.

According to data from The Economist, by the end of 2022, the proportion of global capital flowing into the United States reached 62%, most of which was due to concerns about the Russia-Ukraine war.

Behind this round of interest rate hikes, it is not only an adjustment of financial policy but also a direct reflection of the international political pressure faced by the United States.

The variables of the current situation: As the pace of 2023 quickens, the variables of the global situation have become increasingly apparent.

The Federal Reserve's interest rate hike policy has encountered unprecedented challenges.

The continuation of the Russia-Ukraine war and the intensification of the Israel-Palestine conflict have brought new uncertainties to capital flows.

In February 2023, the U.S. government announced that it would provide military assistance to Ukraine, leading to capital flowing back into the U.S. market.

Can this capital inflow continue?

What are the risks faced by the Federal Reserve?

In this context, Powell's interest rate cut announcement has attracted widespread attention, and the debate within the Federal Reserve has become increasingly fierce.

According to a report in The Wall Street Journal, some economists believe that a rate cut will exacerbate the risk of inflation in the United States and affect the stability of the global economy.

Other economists believe that if the United States does not adjust its policies in time, it may face more severe economic consequences.

The hidden worries behind the rate cut: The decision to cut rates is not just a matter of high or low interest rates but also a consideration of the United States' position in the global financial system.

If high interest rates are maintained, the United States may face the risk of capital outflow.

Data show that at the beginning of 2024, U.S. interest rates will drop to 4.5%, while the interest rates in developing countries are generally lower than this level.

This reality will make the flow of global capital more complex, especially against the backdrop of countries like Russia and China seeking economic self-sufficiency.

The Federal Reserve's interest rate cut decision, to some extent, reveals the vulnerability it faces as the global financial hegemon, with the risk of capital outflow, increased domestic inflation pressure, and the complexity of international geopolitics, making the future policy of the Federal Reserve full of uncertainty.

This is not only a challenge to the U.S. economy but also a major test for the global financial order.

In this context, readers cannot help but ask: Does the Federal Reserve's interest rate cut mean the end of American financial hegemony?

How will the global economy be reshuffled in this transformation?

Will capital continue to follow the United States, or will it turn its attention to other emerging economies?

In conclusion and sublimation: From the lessons of history, we can see how American financial policy has played a key role in the global economy.

The interest rate cut announcement in 2024 reveals the complex challenges faced by the Federal Reserve.

Whether it is looking back at the past "harvesting" model or looking forward to the future global financial pattern, all of this reminds us that changes in the international economic environment will have a profound impact on every country and every capital market.

As the challenges faced by the Federal Reserve increase, the future of the global economy remains uncertain.

The flow of capital, policy adjustments, and geopolitical frictions will all become key factors in determining the future financial pattern.

A move by the Federal Reserve may change the entire game.

Each of us needs to pay attention to this process, think about the deep meaning behind it, and only then can we better grasp the opportunities and challenges of the future.