It was thought that the dust had settled,but the negotiations between American auto workers and capitalists suddenly declared "officially broken down," which means that the American economy has added new variables,and the Federal Reserve will also be "caught in a dilemma" when formulating policies again.
American workers strike,and the Federal Reserve is caught in a dilemma.
The contradiction of the matter must start with American auto workers and the three major American car manufacturers.
Is life difficult due to high inflation?American auto workers strike?
Starting in 2020,the global economic cycle was disrupted by the pandemic.At that time,President Trump of the United States had to take the simplest and most effective method of "unlimited quantitative easing" to stimulate the economy.The Federal Reserve printed money and gave money to the American people to stimulate the economy.
However,this approach was just a temporary solution.The highest inflation rate in the United States reached 9.1%,which greatly increased the cost of living for the American people.Although in the first two years,Trump's money distribution offset the rise in living costs,as the savings of Americans gradually ran out and credit cards were maxed out,the American people had to face more difficult survival issues,that is,wages were not enough to spend,and purchasing power decreased.
Americans spend wildly,leading to reduced savings and increased credit card debt.
What to do when there is no money to spend?One solution that the American working class thought of was to ask capitalists to raise wages.The most recent and fiercest incident is the employees of the Detroit auto company.More than 146,000 workers united to demand that American car companies raise their wages,and the union demanded a wage increase of up to 40%.
What if they don't agree?These 150,000 people will go on a major strike lasting more than 40 days,directly plunging the American auto industry into crisis and chaos,and even affecting the American economy.Some experts have analyzed that a strike of 10 days will cause an economic loss of up to 5 billion US dollars,and the GDP growth rate of the third quarter in the United States will also be greatly affected.
So the two sides began to confront each other and conduct negotiations between labor and capital.American auto workers use strikes to protest and threaten.However,the three major American car manufacturers,Ford,General Motors,and Stellantis,are not to be trifled with.Firstly,the three major automotive groups have expressed dissatisfaction with the strike,as the current automobile production is already struggling.The renewal and replacement of new energy vehicles have already made it difficult for the three major car manufacturers to operate.The export of new energy vehicles from China and the explosive sales of Tesla have put significant pressure on other global car companies.If employees are allowed to receive a 40% pay raise,it is estimated that the cost for car manufacturers would be so high that they would go bankrupt.
According to data,Ford's operating loss in the second quarter has reached as high as $1.09 billion,and even if they start transitioning to electric vehicles,the current loss in this business is as high as $1.8 billion.If workers' wages continue to rise,this means that the losses for car manufacturers will continue to expand.The situation for the other two companies is actually similar.
General Motors even stated that if they agree to the union's demands,it would mean an additional expenditure of $100 billion,which they cannot afford.To show their strong stance,Ford directly announced the layoff of 500 people,
expressing their position of "absolutely not backing down."
On one side,there is the issue of not being able to eat without a pay raise,and on the other side,there is the issue of having to significantly increase costs if a pay raise is given,leading to difficult company operations.With neither side having a way out,on September 15th,negotiations officially broke down,and 150,000 American car workers announced a strike.This is also the first joint strike by the United Auto Workers against the three major car companies in 80 years.
The continuous intensification of inflation in the United States,is the U.S.economy heading for a hard landing?
The strike by workers at the three major U.S.car manufacturers,as well as the previous strikes by American truck drivers and dockworkers,highlights a serious social issue in the United States,which is the over-issuance of U.S.dollars,leading to a significant and continuous inflation.Inflation has led to a significant increase in the cost of living for people,and Americans would find it difficult to survive without a pay raise.
Let's look at the inflation data in the United States.Since 2020,the U.S.inflation rate has increased significantly,with the highest exceeding 9%,and even now it is as high as 3.7%,while the core inflation rate is even higher at 4.3%.In contrast,China's inflation rate is close to 0%.
Continued high inflation will have a serious impact on the U.S.economy.If it drags on for too long,it will lead to an economic recession known as "stagflation," which will result in the most unacceptable "hard landing" for the U.S.economy.The strike by American car workers this time will not only increase the unemployment rate in the United States but also lead to a decline in the U.S.PMI manufacturing index,directly contributing to the recession of the U.S.economy.
In the past two months,the U.S.CPI index has risen from a low of 3.0% to the current 3.7%.In September,due to production cuts by Russia and Saudi Arabia,international oil prices have risen,and U.S.inflation will inevitably increase this month.Coupled with the strike by American car workers,the U.S.economy in the third quarter will inevitably fall short of expectations,which means that the economic recession in the United States will further increase.
American car workers' strike.Originally,the US economy,buoyed by the Federal Reserve's past money printing,maintained a decent growth rate during the interest rate hike cycle,even being considered a "soft landing" for the US economy.However,with the recent strike incident,coupled with the global rise in energy prices,the US economy seems to be heading towards a hard landing and a trend of stagflation.
Once the US economy falters,the Federal Reserve will have a headache.
Powell is in a dilemma.
On one hand,the continuous recession and the trend towards a hard landing of the US economy require the Federal Reserve to consider stopping interest rate hikes to avoid the suppressive effect of interest rate hikes on the US economy and to alleviate economic recession.
On the other hand,the US core CPI index remains high at 4.3%,far above the 2% inflation target set by the Federal Reserve.The core inflation rate greatly exceeds expectations,which means that the Federal Reserve still has a high probability of raising interest rates this year.
What to do?According to the current forecast of the Chicago Mercantile Exchange,the probability of the Federal Reserve on September 23 has fallen from the previously expected 12% to the current 2%.This is the pressure that the recession of the US economy brings to the Federal Reserve's interest rate hikes.
On the other hand,the continuous increase in US inflationary pressure makes the probability of the US Federal Reserve raising interest rates by 25 basis points in December this year as high as 34.4%,and there is also a 4.8% probability of raising interest rates by 50 basis points.There is even a 0.1% probability of raising interest rates by 75 basis points.
The interest rate hike process expected by the Chicago Mercantile Exchange.
So don't look at Powell as the chairman of the Federal Reserve,but the inflationary pressure brought by the strike of American workers due to living pressure,and the huge pressure brought by the recession of the US economy,make the Federal Reserve wrong no matter what it does.It will inevitably be criticized and blamed by the market.So the job of the chairman of the Federal Reserve is not easy either.
SummaryOverall,the U.S.economy showed signs of a "soft landing" in the previous months due to the "suspected" revision of economic growth rates.However,as the savings of the American people are depleted,credit card debt increases,and inflation continues to intensify and rebound,the living difficulties faced by ordinary Americans have led to a surge in strikes by American workers.
The "no retreat" policy of American business owners will lead to ongoing strikes,increased unemployment,a decline in American manufacturing,and thus trigger an embarrassing situation of economic recession and increased inflation.This could plunge the U.S.economy into a crisis of stagflation and a hard landing.
From this perspective,it is difficult for the Federal Reserve to resolve the internal contradictions and difficulties of the U.S.economy in the short term,no matter what it does.The current Federal Reserve is like being roasted on a spit,with any action being a mistake.
The future prospects and development potential of China are incomparable to those of the United States.
On the contrary,although China is also facing a situation where internal growth momentum is insufficient,we do not have the pressure of high inflation.Therefore,despite facing the negative impact of the Federal Reserve's interest rate hikes,we only need to stimulate the economy,stimulate domestic demand and investment,and the policy direction is very clear.Moreover,an economic growth rate of over 5% far exceeds that of the United States.
So compared to the dilemma of the U.S.economic policy,although our economy also faces the pressure of recovery,the future prospects and development potential are incomparable to those of the United States.
Therefore,I also believe that China's economy will develop faster and better in the future,and it is not an unattainable dream for China's GDP to surpass that of the United States by 2035!
