The most noteworthy thing in the market today is that many influential officials of the Federal Reserve have unanimously stabilized the status quo and expectations of raising interest rates.
Whether the Fed’s interest rate hike is based on speculation and confusion of market public opinion will reflect the high-end level and capabilities of the Fed and the US dollar. The Fed’s rate hike needs to consider the actual and long-term essential characteristics of the United States.
What did key Fed officials say?
Four officials of the Federal Reserve commented on monetary policy on Monday, and their hawkish stance is enough to show that the Fed’s policy purpose and planning are difficult to change.
Although there is a decline in U.S. inflation, the high level of U.S. inflation is a reality, and there is still a high probability that inflation will rise again in the future. Although the market is betting that the Fed will not raise interest rates in June, or even lower interest rates in September, most Fed officials believe that there is still a long way to go in raising interest rates, and the work of fighting inflation has not yet been completed.
One is that Atlanta Fed President Bostic doesn’t see a rate cut until at least 2023, and he sees a rate hike more likely. “To me, keeping inflation under control is the number one priority. We have to get back to our goals. If there is some cost to that, we have to be willing to bear it.” Resilience, the labor market remains very tight. All of this points to upward pressure on prices. If there is an action bias, it seems to me more likely to be more rate hikes than cuts.”
Second, Minneapolis Federal Reserve Chairman Kashkari reiterated that the inflation rate is too high, and there is still a long way to go before the Fed reaches its inflation target. The labor market is not as prosperous as it was nine months ago, but overall it is still strong. The year-on-year increase in U.S. CPI fell back to 4.9% in April, which was 5% lower than the previous value. “
Third, Chicago Fed President Goolsbee said that the decision to raise interest rates in May is very difficult for him. “It was a tough decision for me to raise rates in May,” he said. The Fed was concerned that officials were tightening too much, but he ultimately voted for the measure. “The economic impact of the 500 basis point hike we did last year is not yet fully felt. Also, credit conditions are tight.
So I think we should be very cautious,” he said. “We need to take that into account, and the only The way to do it is to sit back and watch.” While he did not explicitly support a pause in rate hikes in June, he said officials still need a few weeks to assess incoming data.
Fourth, Barkin, chairman of the Richmond Federal Reserve Bank of the United States, believes that if inflation persists, there will be “no obstacle” for the Fed to raise interest rates. While Fed policymakers should remain “sensitive” to financial stability, these concerns should not take precedence over the central bank’s efforts to combat persistent inflation.
“If inflation persists, or (hopefully does not) accelerate, I see no obstacle to further rate hikes.” He will argue for a “prudent” approach that “mitigates the damage of any potential over-correction.” “In my view, the challenge to financial stability posed by the rate hike path is not obvious. I don’t think there is a need to make a different decision because of financial stability risks.”
The above facts show that there is a difference between the current market sentiment and the clarity of the Fed’s policy. Inflation and interest rate hikes are not contradictory, and the Fed will not easily give up and change interest rate hikes.
What is the fundamentals of the U.S. economy ?
The monetary tool of the central bank to raise interest rates is a macro-control tool, which aims at stabilizing and coordinating the economy.
On the one hand, the market needs to review how the U.S. economy is doing after the Fed raises interest rates? On the other hand, banks need to reflect on whether the Fed’s interest rate hike is the reason for subverting bank risks? In 2022, the Federal Reserve will raise interest rates by 450 points seven times, especially after June, raising interest rates by 75 points in a row for 4 times.
The benchmark interest rate of the US dollar will reach about 4.5% very quickly, but in the end the US economy will grow by 2.1% for the whole year, especially the economic aggregate A record high reached a new level of 25 trillion US dollars.
During the first half of the year, the U.S. economy showed a peculiar performance of two quarters of economic recession, but the actual results so far have not had any information to comment on the stage and status of the U.S. economic recession. This is the focus of our current reflection and thinking.
At present, the unemployment rate in the United States is stable at 3.4%, which is a new low level in 50 years. In addition, the employment rate in the United States has remained basically high at 250,000. This is the confidence for the Fed to raise interest rates and is also an important support for monetary policy parameters.
Data show that the United States added 256,000 non-agricultural jobs in April and exceeded economists’ forecasts for 13 consecutive months. The unemployment rate fell to 3.4%, the lowest level this year. According to the structural characteristics of the U.S. economy, over 70% of the U.S. economy’s consumption expenditure should be the macroeconomic foundation. It is self-evident that the purchasing power of consumption comes from the abundance of goods.
The record high U.S. trade deficit data is enough to show that U.S. consumption is ready for adequacy, and companies are still destocking It is the unavoidable advantage of preparation and response. The income and wealth accumulation of American residents are an important combination of consumption and spending capabilities.
From the perspective of resident income, employee compensation accounts for the highest proportion of personal income in the United States, followed by personal transfer payment income, while employee compensation mainly depends on employment status, and personal transfer payment income mainly comes from social security, medical insurance and subsidies.
The U.S. reservation wage (the minimum wage a labor force accepts for a new job) rose to a record $76,000, and personal transfer payments reached 5.9 percent and 8.7 percent in the past two years, reaching their highest level since 1984. In terms of resident wealth, as of 2022, the total assets of U.S. residents will reach 158 trillion US dollars. In the first quarter of 2023, U.S. personal consumption expenditures will increase by 3.7%, a quarter-on-quarter increase of 1%, which is the highest level in two years.
The income of domestic consumption in the United States is solid, and the price and structural allocation are the support for the enthusiasm of the economy, and also the environment and factor guarantee for the Fed to dare to raise interest rates quickly.
The Bank of America turmoil is caused by small banks having no deposit reserves and even misjudging the pace of the Fed’s interest rate hike. The lack of predictability is the fatal cause of the bank, but it shows that the coordination mechanism of the US banking system is strong and stable. The Bank of America incident is an oolong The strategic application of maneuvers rather than the severity of the problem.
Is the Fed raising interest rates short-term or long-term?
The special qualifications of the Federal Reserve are the key to understanding the strength of the US central bank.
Generally, the national central bank and municipal government contribute capital, while the Federal Reserve is the consortium shareholder’s capital injection. It is the characteristic of the Federal Reserve that institutions are rich and powerful. It is the characteristic of the Federal Reserve that it is the characteristic of the Federal Reserve to make money and accumulate wealth.
The Federal Reserve is a privately run bank, and the purpose of profit is the characteristic of the Federal Reserve Jewish Group’s holdings. Its core shareholders are the four major Jewish families, in addition to the member banks of the Federal Reserve of the United States in each region, and 12 banks have a certain shareholding according to the proportion of assets, but they are non-profit institutions.
The U.S. Federal Reserve Board of the Federal Reserve is a representative of the U.S. government and only holds 10% of the shares. The particularity of the Federal Reserve mechanism is the basis and core of monetary policy planning.
Therefore, the Fed’s interest rate hike must be a choice and plan made after assessing market risks and its own demands in advance, not a short-term strategy for brainstorming, especially for the future market structure and layout, which may have already been planned in advance.
Just as the IMF economists’ survey and research said, through the calculation of the standard Taylor rule, some countries need to raise interest rates to more than 7% to reduce inflation.
At present, the decline in U.S. inflation has been obvious, but the indicator is still higher than the defined level of monetary policy. The Fed’s interest rate hike target in this round will reach 6%, which is also the benchmark level of the new U.S. economic cycle interest rate since 2000.
Therefore, the market speculation that the Fed will not raise or lower interest rates is an insightful, tentative and even deliberate campaign, not the real thinking and planning of the Fed.
The long-term nature of the Fed’s strategy is a perspective seriously ignored by the market. The hegemony of the U.S. dollar is the starting point for the Fed to make money. The U.S. dollar is the focus of the Fed’s regulation.
The strategy of devaluing the dollar is the smart thing, not the collapse of the dollar or extreme de-dollarization. Just imagine the US dollar and the Federal Reserve facing a lot of problems. They not only increase their bargaining chips for economic recession, including the turmoil of small and medium-sized banks and the default of US debt.
At present, there is still one month before the 4th regular meeting of the Federal Reserve within the year. Market speculation will be the interference factor of judgment, and even the space and environment that the depreciation of the dollar may take advantage of.
This is a positive factor for the United States, but it is a negative factor for the world. The spillover effect of the currency will be associated with a wider range of indicators and data. The superposition of uncertain risks will make the situation more complicated or chaotic, which requires determination to judge.
