The latest economic data has brought many surprises. The performance of the United States in the third quarter was unexpectedly strong—an annualized GDP growth rate of 4.3%, far exceeding market expectations. Meanwhile, inflation data has risen from 2.1% in the spring to 2.8%, a rise worth following.

Why is this set of data important? Because it directly reflects the health of the economy and will also affect the Federal Reserve's policy decisions. For most of this year, there has been ongoing debate about whether the Federal Reserve should more aggressively lower interest rates. At that time, the target range for the federal funds rate was at a level of 4.25% to 4.5%, with many voices calling for a reduction to 1% or even lower.

But according to the latest data, even with relatively high interest rates, the economy continues to operate resiliently. This raises an interesting question: what would happen if interest rates were significantly cut?

Theoretically, excessive interest rate cuts can easily trigger a rebound in inflation - we have already seen a rise from 2.1% to 2.8%. Once inflation spirals out of control, the likelihood of the Federal Reserve being forced to raise interest rates again will significantly increase. Such a cycle not only drives up long-term rates and mortgage costs but may also lead to the risk of stagflation after an overheated economy. For groups relying on fixed income, such as retirees, the inflation nightmare of the 1970s may repeat itself, with dire consequences.

This month, the Federal Reserve did indeed initiate a rate cut, a decision that somewhat reflects various political and economic pressures. Fortunately, the independence of the Federal Reserve has largely been maintained, avoiding a situation of being completely swayed. How interest rate policy evolves in the future will largely depend on whether inflation can stabilize within a reasonable range. For traders, every step of change in this process is worth closely following.