The biggest pain point for the current US capital market and macroeconomy is not short-term employment, but rather the persistently high market interest rates brought about by inflation and national debt, coupled with a weakening US stock market. High yields not only significantly increase the cost of US government debt financing and exacerbate fiscal deficit pressures, but also suppress stock market valuations and inhibit corporate investment and household consumption, becoming a core constraint on the continued expansion of the US economy. For this reason, Trump has repeatedly and publicly pressured the Federal Reserve, stating that the US should not maintain a high-interest-rate environment for an extended period, and making a tough statement: if the Federal Reserve continues to refuse to cut interest rates and maintains high rates, the US will cut off trade with all countries with which it has a trade deficit, using extreme trade measures to force monetary policy adjustments. The internal contradiction in the US—the desire for low interest rates versus the reluctance to cut rates—has become completely public.

The explosive non-farm payrolls report: Why didn't it cause widespread market devastation?

This week's August non-farm payroll data, on the surface, completely locked up the Federal Reserve's policy space for short-term interest rate cuts. The August non-farm payrolls increased by 162,000, three times the market expectation, the unemployment rate remained stable at 4.1%, the labor force participation rate rose to 61.6% for the first time in 11 months, and the broad unemployment rate (U-6) fell to 7.7%, a new low since June 2025. Coupled with the upward revision of July's data, the labor market showed unexpectedly strong resilience. According to the old mindset that "good news is bad news," this directly pushed up expectations of interest rate hikes, and US tech stocks fell sharply that day. Trump even angrily denounced this distorted market expectation of "good jobs, bad stock market" on Truth Social. However, the market did not experience a widespread collapse. What is the real logic behind this? Because the market is quickly calibrating its pricing: the strong non-farm payrolls first proved that the US real economy remains healthy, completely eliminating market panic about a "hard landing" and recession. For US stocks, a healthy real economy and robust corporate earnings (the numerator) are the underlying support. More importantly, the market is beginning to realize that lowering market financing costs and US Treasury yields, and that interest rate cuts are not the only path forward.

CPI and PPI data: The underlying considerations behind the Fed's hawkish stance

Following the non-farm payrolls report, the market will see the PPI data on September 10th and the CPI data on September 11th this week, the final "litmus test" before the Federal Reserve enters its blackout period on September 5th. The market expects the August CPI to rise 0.4% month-on-month, with the year-on-year growth rate potentially dropping slightly to 3.3%; core CPI is expected to fall to 2.3% year-on-year, but the PPI, driven by geopolitical tensions and diesel prices, is expected to rise 0.4% month-on-month, potentially reaching 5.4% year-on-year. The Fed's considerations: The Fed's bureaucratic system (such as Waller and Williams) is closely monitoring these two data points. Waller has explicitly stated that if inflation data rebounds, a rate hike will be inevitable. The Fed maintains its hawkish stance essentially because, assuming no risk of recession in the real economy, a forced rate cut would instantly ignite inflation expectations, causing long-term Treasury yields to surge due to the inflation premium.

Conflicting Policies Between the Two Sides: How Can the Federal Reserve and the Treasury Cooperate to Improve the Rating of US Debt?

On the surface, the Federal Reserve is implementing a tight monetary policy (maintaining high interest rates and a hawkish stance), while the Treasury is engaging in refined liquidity allocation. While their policies appear divergent, they are essentially a coordinated strategy to enhance the creditworthiness of the US Treasury market: Fed tightening (maintaining independence, suppressing inflation expectations): The Fed maintains its central bank independence through a strong hawkish stance, demonstrating its firm resolve to prevent "double-dip inflation" to the global market. This successfully anchors long-term inflation expectations and removes the "runaway inflation premium" from US Treasuries. Treasury "activating idle funds" (not quantitative easing, but guiding liquidity into the real economy): The Treasury (such as the Bessant team) does not blindly "print money and flood the market," but rather adjusts the bond issuance structure to channel idle liquidity (such as reverse repurchase funds) held by commercial banks and financial institutions at the Fed that they are unwilling to use, directing it towards the US Treasury secondary market and the real economy. This not only avoids triggering inflation but also improves the buying structure and liquidity of Treasury bonds. Ultimate Synergy: Reducing the Risk Premium of US Treasuries. The Federal Reserve used tightening to suppress inflation expectations, while the Treasury used existing funds to safeguard the liquidity of US Treasuries. The combined effect of these two factors significantly improved the global market's overall assessment of the repayment capacity and creditworthiness of US Treasuries, successfully compressing the "risk premium" of US Treasuries. As a result, without relying on the Federal Reserve to blindly cut interest rates, it spontaneously lowered long-term interest rates in the market.

A systematic combination of measures: geopolitical control of oil prices and national/middle-class income generation increases.

Beyond financial measures, the US is undertaking deeper macroeconomic policy adjustments, including increasing revenue, reducing expenditure, and structural reforms: Geopolitical and oil price control (precise inflation prevention): Faced with imported inflation caused by geopolitical disputes, the US is not passively accepting it, but rather forcefully suppressing oil premiums through financial maneuvering, public opinion guidance, and policy suppression of oil-producing countries like Iran. Keeping oil prices low not only cuts off the root cause of inflation rebound but also removes the biggest obstacle to lowering interest rates. National revenue generation and deficit control: Reducing expenditure does not mean passive contraction. The government achieves "the country earns more" by reshaping tariffs, cracking down on overseas tax evasion, and securing key oil resources through oil wars; simultaneously, it controls unrestrained fiscal deficits, demonstrating its balance sheet repair capabilities to global creditors. Restructuring K-shaped distribution (allowing the middle class to earn more and activating endogenous growth): Currently, wealthy Americans maintain strong consumption due to asset appreciation, but the middle class and low-to-middle-income groups suffer from high prices (as Shilling points out, supermarket prices are squeezing consumer confidence, increasing bankruptcy rates, and Lululemon's same-store sales plummeting by 18%). Controlling the deficit and increasing middle-class income are not contradictory. By channeling the profits from national revenue generation and the benefits of industrial repatriation back to the middle class, we can enable the middle class and real economy enterprises to earn more money. By leveraging the higher marginal propensity to consume among the middle class, we can rapidly stimulate domestic real economy consumption, expand the national tax base, and ultimately achieve a complete transformation of fiscal policy from "relying on debt" to "shared prosperity between the state and the middle class, and endogenous self-sufficiency in the real economy."

Summarize:

The US capital market is undergoing a brief shift in logic: from a domestic economic and fundamental perspective, it's about increasing revenue and reducing expenditure, controlling the valuation of government bonds and treasury bonds to curb rising yields. The Federal Reserve maintains its independence and anchors inflation expectations through a tightening stance, while the Treasury safeguards US Treasury bonds by revitalizing dormant liquidity. Both have collectively improved the market valuation and creditworthiness of US Treasury bonds. This is compounded by geopolitical pressures on oil prices, increasing revenue and controlling the deficit, and structural adjustments aimed at increasing the wealth of the middle class. This systematic approach is the orthodox solution to simultaneously "lower market interest rates, alleviate debt pressure, and support US stock valuations." However, whether it will ultimately succeed, whether the US can complete its transformation amidst high interest rates, war, and a high-flying stock market, or even just win the propaganda war, remains to be seen. Meanwhile, this logic is generally not favorable for gold. Since this narrative favors reserve currencies like the US dollar and US Treasury bonds, only future interest rate declines, a US recession, or a worsening US debt situation will provide substantial benefits to gold prices.