On the morning of March 20 (Beijing Time), the Federal Reserve maintained the target range for the federal funds rate at 4.25%–4.5% in its latest policy decision. Market reactions were polarized: while some anticipated a rate cut in light of declining stock markets and an unstable labor market, others remained concerned about persistent inflationary pressures. In this context, Professor Sun Lijian, Director of the Financial Research Center at the Fudan Development Institute, was interviewed by Yicai Radio and 21st Century Business Herald. This article is compiled based on his analysis and additional commentary.

Professor Sun Lijian noted that the Fed’s decision to hold rates steady reflects a cautious balance between inflationary pressures and the risk of economic downturn. He analyzed the potential impacts of tariff policies, immigration policies, and protectionist economic strategies on both the U.S. and global economies, emphasizing that such policies might exacerbate inflation and even lead to stagflation. Furthermore, Professor Sun discussed the likelihood of future rate cuts by the Federal Reserve, asserting that such decisions would depend on the evolution of underlying economic fundamentals and the Fed’s capacity for expectation management. He cautioned that the Trump administration’s overconfidence might neglect the adverse long-term consequences of short-term measures on economic imbalances, while the future trajectory of the global economy will hinge on nations’ ability to reconstruct a healthy and sustainable growth model founded on mutual benefits.

Global central banks now face the risk of spillover effects from U.S. policies, forcing them to make difficult choices between imported inflation and a deceleration in economic growth. Regarding the Japanese economy, Professor Sun argued that its growth prospects face multiple challenges, including misallocation of capital, imbalanced demographic structures, and constraints imposed by the U.S.–Japan alliance. Although the Japanese government has made efforts to stimulate domestic investment and improve the business environment, the outflow of market capital and certain restrictions on overseas investments—driven by geopolitical considerations—have undermined its endogenous growth drivers. Moreover, Japan’s aging population and declining birthrates further pressure domestic demand and the labor market. Despite progress in fixed investment and financial system reforms, achieving sustainable economic growth will require Japan to address the constraints of the U.S.–Japan alliance, imbalances in capital flows, and demographic challenges, while seeking a more diversified array of domestic and international commercial opportunities supported by increased fixed investment in innovative capital.

Translated by Yuyao ZHAO

Full text in Chinese available at: 

https://mp.weixin.qq.com/s/B7z969FyEntVqXDqgP0zUw