🔥 Thoroughly Explained! The Top 10 Hard-Core Truths Behind the Federal Reserve Being Too Afraid to Raise Rates

Rate-hike expectations from the Federal Reserve have been discussed in the market for a long time—and are now being completely cooled down!

Kevin Worsh will attend the first policy meeting after taking office. Before that, the market was full of hawkish voices: non-farm payroll data came in above expectations, PCE inflation remains stubbornly high, the AI rally has stayed blazing hot, and international oil prices have kept surging—countless signals all seemed to be pressuring the Federal Reserve to raise rates.

But if you look through the surface excitement to the essence: the Federal Reserve simply does not dare to raise rates—and it absolutely cannot raise them either!

Today, I’ll lay out, in one go, the underlying truths behind it all using ten of the most hard-core, most down-to-earth core logics—so you can understand the U.S.’s current economic predicament!

1、Inflation is inflated! Core inflation has already been weakening for a long time

In May, the U.S. headline CPI rose 4.2% year-over-year; it looks like inflation is still running hot, but in reality, there’s a lot of “water” in the data.

Based on a breakdown of the figures, more than 60% of the inflation increase is entirely propped up by oil prices, which is typical external disturbance inflation. The core CPI that the Federal Reserve truly focuses on—the one with the most reference value—only rose 0.2% month-over-month, far below market expectations.

The remaining inflation pressure comes entirely from supply-side problems triggered by Middle East geopolitical conflicts. With this kind of structural inflation, tightening monetary policy via rate hikes is completely ineffective—it will only end up injuring the real economy.

2、The booming non-farm payrolls are a short-term pulse, not evidence of an overheated economy

In May, non-farm employment added 172,000 jobs. The data looks explosive on the surface—it fooled most investors.

If you break down the employment structure, you can see the truth: 73% of the newly created jobs came from hotel services and temporary hiring by local governments—everything is short-term and temporary positions created to accommodate various anniversaries and World Cup events.

Meanwhile, core industries that represent the fundamentals of the economy—finance, retail, manufacturing, and others—are still continuing to lay off workers and scale down. The employment boom is just a short-term illusion and absolutely not a sign that the economy is overheating across the board.

3、The surge in oil prices is due to geopolitical games; rate hikes would only pour fuel on the fire

Brent crude is currently trading in a high-range oscillation around 95–110 dollars. The core root cause of the surge in oil prices is disruption in shipping through the Strait of Hormuz, along with turmoil in the Middle East.

This is a supply crisis caused purely by geopolitical conflict, and has nothing to do with market liquidity flows.

Looking back at the U.S.’ stagflation in the 1970s and the painful lessons learned: for energy inflation pushed up by supply-side factors, blindly raising interest rates not only fails to bring prices down, it will directly lock up the economy—triggering a stagflation crisis. That would be absolutely not worth the cost.

4、The economy looks prosperous, but it’s actually externally strong and internally weak—seriously bloated

The AI rally sweeping the whole internet is only a localized hotspot within a single sector. It cannot move the overall U.S. economy at all.

At present, the U.S. manufacturing PMI has continued to hover at low levels, GDP growth has long been below potential growth, and the real estate market has continued to be sluggish and weak. All three major core economic indicators have turned weaker.

Localized hotspots can’t support the entire economy. There’s no point at which liquidity tightening requires a heavy, total-amount tool like rate hikes.

5、Household debt pressure is through the roof—people’s lives have already become unbearable

On one side, high and persistent oil prices keep lifting living costs. On the other, long-term high interest rates keep squeezing household income.

With these two pressures stacked together, U.S. credit card delinquency rates have kept soaring. Households have comprehensively cut back on non-essential consumption and downgraded their spending.

More importantly, U.S. workers’ hourly wage has only grown by 3.4%—wage growth has far lagged behind cost increases. Ordinary people can no longer withstand the current economic pressure. If rate hikes happen now, they will directly punch through households’ consumption bottom line.

6、The risk of a commercial real estate blow-up is hanging over high—banking-crisis risks have not been eliminated

Commercial real estate is the biggest hidden minefield in the U.S. right now!

Office vacancy rates nationwide have remained high, asset valuations have continued to shrink sharply, and many regional small and medium-sized banks hold huge piles of bad commercial real estate assets and non-performing loan “mess”—with risks continuing to accumulate.

If the Federal Reserve raises rates again, the cost of market refinancing will surge sharply. A large number of real estate developers and commercial entities will directly blow up. The regional banking crisis of 2024 is very likely to repeat, triggering systemic financial risks.

7、U.S. Treasury debt size is out of control—high interest rates are crushing the fiscal system

The U.S. federal debt has already surpassed 39 trillion U.S. dollars. Annual interest expense on the debt has formally exceeded 1 trillion. Fiscal pressure has long been close to its limit.

Continually raising rates would only further increase the cost of debt financing—leading into a deadly vicious cycle: the higher the interest rate, the larger the fiscal interest expense; the higher the fiscal interest expense, the larger the fiscal deficit; and market interest rates are pushed up passively—completely exhausting U.S. fiscal credibility.

8、Global markets are extremely fragile—can’t withstand the shock of rate hikes at all

The financial markets today are already as fragile as thin glass. They have absolutely no ability to resist risks.

Previously, even just market speculation about “rate hike expectations” directly caused a major pullback in U.S. stocks, Treasury yields to skyrocket, and global risk assets to collectively shock lower and plunge.

Once the Federal Reserve lands a substantive rate hike, with emotions intensifying and money “stampeding,” global capital markets will very likely experience a deep collapse.

9、Rate hikes hurt others and ultimately backfire on the U.S.’ global economic position

Federal Reserve rate hikes have always been a “harvesting sickle” for global capital, but now they have already turned into a double-edged sword.

Raising interest rates in the U.S. will directly lead to sharp depreciation of emerging market currencies, capital flooding out at full speed, and a spike in the risk of external debt defaults—triggering global economic turbulence.

As the global economy slows and demand in emerging markets collapses, it will ultimately rebound and hit U.S. exports and the foreign trade economy. This is a typical case of hurting others and oneself—and ultimately backfiring on oneself.

10、Monetary policy has lag effects—earlier rate-cut benefits are only now being released

Monetary policy has never taken effect instantly; it has a transmission lag of 3–12 months.

The easing effects from multiple rounds of Federal Reserve rate cuts in 2024–2025 have only recently begun to transmit gradually and show up in the real data—most intuitively reflected in core PCE weakening and CPI month-over-month cooling.

At this point, the easing dividend has only just begun to appear. Raising rates now would directly interrupt the trend of inflation falling, and disrupt the pace of economic recovery.

One-sentence ultimate summary

Inflation is pushed up by geopolitical supply; employment is cobbled together by temporary jobs; the economy is propped up by localized hotspots; and capital markets are extremely fragile!

In sum, for this first policy meeting of Worsh, the best solution has only two words: wait and see! Most likely, they will keep interest rates unchanged and hold steady!
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