As the two largest economies in the world, the United States is raising interest rates while China is lowering them. The Sino-American rivalry has entered the much-watched financial sector, with the financial warfare situation intensifying.

To be precise, it is the Federal Reserve that is raising interest rates. The Federal Reserve is akin to the central bank of the United States. Coupled with the global status of the US dollar, any operation by the Federal Reserve can have a significant impact on the global financial markets.

The United States began raising interest rates in March of last year. The legitimate reason for the US rate hike is to reduce inflation, as the previous large-scale monetary easing in the United States led to a continuous rise in inflation rates. Raising interest rates is an effective means to lower inflation. However, the Federal Reserve's rate hikes are not solely for reducing inflation rates.

It is important to understand that the dollar hegemony is achieved through a cycle of dollar rate cuts, hikes, and then cuts again to harvest global wealth. The timing of the Federal Reserve's rate hike last year coincided with the outbreak of the Russia-Ukraine conflict. Shortly after the conflict began in Russia, the Federal Reserve announced a rate hike, successfully harvesting its allies—Europe. Safe-haven funds from Europe fled to the United States, causing the US dollar index to soar and the euro exchange rate to plummet.

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Now, the Federal Reserve continues to raise interest rates, even at the risk of continuous bank failures within its own country. This is because the dollar's harvest in this round has not been completed, at least not to the desired effect. Therefore, it is highly likely that the United States will continue to raise interest rates within the year.

The US dollar deposit rate has already reached 5.5% in the first half of the year, while the operations of China's central bank are exactly the opposite of the United States. China has been continuously lowering interest rates, with the one-year deposit rate of state-owned large banks already as low as 1.55%.

With the United States aggressively raising rates to 5.5% and China lowering them to 1.55%, such a large interest rate differential makes it inevitable for a large amount of hot money to flow to the United States. The United States' "vampire method" to attract global funds to flow to the United States relies on this move. Therefore, Europe also follows the United States in raising interest rates, fearing that a large amount of funds will be sucked away by the United States. Coupled with the high inflation rate in Europe, it can only raise interest rates.

However, why doesn't China follow suit and raise interest rates, but instead continues to lower them? The reason is actually very simple. China's CPI is very low, and the inflation rate has been below 1% for several consecutive months, even with the risk of deflation. Naturally, it is impossible to raise interest rates in this situation, and it can only continue to lower interest rates to provide liquidity.

Continuous interest rate hikes pose a great danger to the economy and also bring about a huge fiscal burden. The current US debt scale has reached 32 trillion US dollars, and the interest paid annually has already reached 100 billion US dollars. US debt has long been in a situation of borrowing old and repaying new, robbing Peter to pay Paul, a vicious cycle. After all, the US dollar interest rate has reached 5.5%, and the cost of issuing debt is too high!

Even though raising interest rates has already put a great burden on the US economy, the Federal Reserve still cannot stop raising interest rates. In July, the US CPI unexpectedly rebounded, increasing by 3.2%. The United States will only consider lowering interest rates when inflation is reduced to within 2%. Otherwise, once inflation rebounds again, it will trigger a major economic recession. After all, such events have occurred in US history, and the Federal Reserve does not want to repeat the same mistakes.Additionally, the United States is also attempting to capitalize on a high-interest environment to short China from various angles, attracting hot money flows to the U.S. At the same time, they are disseminating the message that the Federal Reserve will continue to raise interest rates, aggressively drawing capital out of our country. The recent fluctuations in the exchange rate between the Chinese yuan and the U.S. dollar clearly demonstrate the intensity of the currency war!

China is also taking measures to counterattack, such as reducing stamp duties and restricting major shareholders from reducing their holdings, among other positive measures. However, a rare situation of high opening and low closing has occurred, with foreign capital continuing to flow out. Is this the result of some domestic capital cooperating with foreign capital to short China? Such a situation at this critical moment should be thoroughly investigated!

Furthermore, on September 1st, China's central bank announced a reduction of 2 percentage points in the reserve requirement ratio for foreign exchange deposits at financial institutions, releasing liquidity, which will provide significant support for the yuan exchange rate. Today, the yuan exchange rate has already surged by 400 points.

Moreover, on the last day of August, an epic market rescue measure was released, reducing the interest rates on existing mortgages and the down payments for first and second homes. These measures are of great significance for stabilizing the real estate market and the economy, as the Federal Reserve's interest rate hikes are still attempting to trigger debt explosions in China's real estate companies.

It is evident that the central bank has a sufficient policy toolkit to stabilize the exchange rate, and we still have moves to make. However, the United States has already played all its major cards, and the next step is to continue raising interest rates. But the U.S. interest rates cannot continue to rise indefinitely, as it would severely harm their own economic growth. Once the upper limit becomes unbearable, the Federal Reserve will consider lowering interest rates, and what we are waiting for is the U.S. to lower interest rates. Before that, we have many tools and measures to stabilize the exchange rate and the economy.

The Federal Reserve is likely to start lowering interest rates next year, and at that time, China's economy will welcome rapid recovery and growth.

Therefore, in the short term, the United States seems to have the upper hand, but it has few cards left to play. Moreover, raising interest rates poses a significant risk to its domestic banks, and any misstep could lead to bank failures, damaging the core economy. So, from a long-term economic development perspective, China holds an advantageous position.