Author: TechFlow
Recently, both the US stock market and the cryptocurrency market have experienced a major correction. On the one hand, increased tariffs have made it difficult for inflation to decline, and the US dollar index remains at a high level. On the other hand, the US's poor economic data has made investors uneasy, and a "trading recession" may indeed be coming.
According to the March 3 GDPNow forecast data from the Federal Reserve Bank of Atlanta, the forecast for US GDP growth in the first quarter of 2025 has plummeted to a contraction of 2.82%. On February 26, the model had predicted a growth of 2.32%, but in just 5 days (2 working days), the US first-quarter GDP forecast has been quickly revised down by 510 basis points.
This is the worst result for the model's US quarterly GDP forecast since the COVID-19 pandemic in 2020.
However, in the eyes of some Wall Street figures, this is Trump's "Yang strategy". Larry McDonald, a former Lehman Brothers trader, said in his latest podcast that Trump is trying to deliberately create an economic recession to force the Federal Reserve to cut interest rates and reduce the US government's interest expense.
"You can't suppress inflation through massive fiscal spending, the Trump team knows this. They need an economic recession, only then can they lower interest rates and extend debt maturities. The Trump administration is implementing 'financial repression', pushing interest rates below the inflation rate, which is the only way to get out of the $37 trillion debt trap, other than default."
Related reading: Podcast full text | Dialogue with former Lehman Brothers trader: Trump needs an economic recession to fix the economy
Trump and the Federal Reserve have long been at odds, with the Federal Reserve concerned about lowering inflation and hoping for a gradual rate cut, while Trump demands a quick rate cut to reduce government debt service, so that he can avoid falling behind in the midterm elections and must cut rates to stimulate the economy and provide sufficient market liquidity, as well as to reduce the pressure on American borrowers.
According to estimates, if interest rates remain at current levels, US debt interest next year will reach $1.2 trillion to $1.3 trillion, which is much higher than the US defense spending. It should be noted that the US's current fiscal revenue is only about $4 trillion, of which mandatory government spending is around $3.5 trillion, and healthcare spending is around $2.6 trillion. If interest expense is added, this will basically reach 1.7 times the fiscal revenue.
This means that the US will have to continue to rely on debt to finance debt in a high-interest rate environment, and the depletion of market liquidity and the rapid rise in the cost of US Treasuries will continue.
Therefore, in Trump's eyes, not cutting interest rates is tantamount to being an enemy and going against him.
As an expert negotiator, Trump has chosen to "storm the palace" at this time, through trade wars and DOGE layoffs, and even threatening to audit and optimize personnel at the Federal Reserve, to temporarily plunge the US economy into recession, causing the US stock market to fall, thereby putting pressure on the Federal Reserve to cut interest rates, while also being able to blame the previous administration, and then boast about it as his own political achievement when the stock market rebounds.
In addition, Nomura Securities' analysis points out that the Trump administration intends to trigger a "mild recession" through reduced government spending and employment, as well as increased tariff policies, in order to achieve a structural transformation of the economy from dependence on government to the private sector.
This strategy may increase the downward pressure on the economy in the short term, but the long-term goal is to break the US economy's long-term dependence on government spending and make the private sector the main driver of growth, reshaping the US economic growth model.
In any case, in the game between Trump and the Federal Reserve, the US stock market and cryptocurrency market can only suffer first, it is dangerous but also an opportunity, and once the Federal Reserve officially launches a large-scale rate cut, it will also usher in a prosperous moment for the US stock market and the cryptocurrency market.
