The Federal Reserve,which originally stated that it would not raise interest rates,has now released the latest meeting minutes.According to these minutes,the Federal Reserve believes that domestic inflation remains higher than the target,with significant upside risks,which may force the Federal Reserve to further raise interest rates...
Will the Federal Reserve continue to raise interest rates?
Why is the Federal Reserve's policy so complex and changeable?Why has the United States changed its interest rate path multiple times?If the United States continues to raise interest rates and continues to harvest the world,what kind of impact will it have?
Policy sudden change?Is the Federal Reserve going to raise interest rates in September?
In July,the United States raised interest rates by 25 basis points.Considering the CPI data of 3% at the time,most market analysts believed that this was the last interest rate hike by the Federal Reserve.The probability of raising interest rates in September was only about 10%,almost in a state where it was impossible to raise interest rates.
The Federal Reserve raised interest rates by 25 basis points in July.
However,as the CPI in July rose from 3% to 3.2%,things changed.Federal Reserve officials believe that the current inflation is still far higher than their target value,and the U.S.labor market remains tight,with significant risks of further rising inflation in the United States.This means that the Federal Reserve should take further tightening measures to respond.
How to respond?Here,the Federal Reserve proposed two methods: the first is to continue raising interest rates,and the second is to continue shrinking the balance sheet,even if interest rates are lowered in the future,the balance sheet shrinking will not stop.
Firstly,the plan to continue raising interest rates,according to the hawkish remarks of the Federal Reserve,the interest rate hike probability that was originally only 10% before September will increase.This means that the already high U.S.interest rates will continue to rise.This will affect several key factors such as the U.S.dollar index,U.S.Treasury bond interest rates,and thus affect the stock market,the global economy,and other fields.
The 10-year U.S.Treasury bond interest rate continues to rise.So,why did the U.S.stock market fall on Wednesday night?Why did the A-shares open lower today?Why did the U.S.Dollar Index rise further?Why did the Chinese yuan exchange rate break through 7.3?All these are directly related to the Federal Reserve's increased probability of raising interest rates.
Expanding on this,if U.S.inflation data remains as stubborn as ever,then countries around the world,including China,will need to face a deteriorating external economic environment,a continued global economic weakness,and the awkward situation of a sustained downturn in foreign trade exports.
The continuous devaluation of currencies in various countries will also be staged again.Originally,it was thought that the last time was the last time the U.S.wielded the "harvesting sickle," but judging from the current situation,there may still be continuous harvesting.
The second point is that the U.S.'s balance sheet reduction plan will not stop.
Many people don't know that alongside the Federal Reserve's interest rate hike policy,there is also a balance sheet reduction plan.The so-called "balance sheet reduction" is simply the Federal Reserve selling assets,taking back funds,and simultaneously reducing its own assets and liabilities,thereby reducing the amount of dollars in the market.
The Federal Reserve's continuous balance sheet reduction has already approached $1 trillion.
How strong is this balance sheet reduction?According to the latest data from the Federal Reserve,by August,the amount of balance sheet reduction by the Federal Reserve will reach $1 trillion,and the balance sheet reduction will continue,which means withdrawing dollars from the market.
What's more,even if the Federal Reserve lowers interest rates in the future,the balance sheet reduction actions of the Federal Reserve will not stop.That is to say,in the future,we will see the strange scene of the U.S.raising interest rates while the Federal Reserve is reducing its balance sheet.
Therefore,although we have been looking forward to the Federal Reserve stopping interest rate hikes,and even hoping that lowering interest rates will help the global economy,we did not expect the U.S.to not only continue to extend the duration of interest rate hikes,but also to continue to reduce its balance sheet even after lowering interest rates in the future.
This means that developing countries like China will continue to be affected by the tight global capital chain,and the speed of recovery of our foreign trade business will actually be slower.China's foreign trade exports are suppressed by the United States' balance sheet reduction and interest rate hikes.
Why does the United States continue to raise interest rates?How severe is inflation?
In the minutes of the Federal Reserve's meetings,it is clearly stated that Federal Reserve officials are concerned about inflation that is "unacceptably high." So,what is the current state of inflation in the United States?
Firstly,the University of Michigan's inflation rate expectations are quite significant.The latest August consumer 1-year inflation expectations are at 3.3%,a decrease of 0.1%,which is the lowest point since April 2021.
Although the U.S.inflation rate in July was 3.2%,the core inflation rate,which is also of significant reference value,remains high at 4.7%,causing concern among Federal Reserve officials.
The U.S.core inflation rate is as high as 4.7%
Furthermore,financial markets have shown an upward trend in consumer inflation expectations.For example,the yield on inflation-protected bonds in the United States has been rising.
What does this mean?In simple terms,it means that financial markets believe that the inflation rate will continue to rise,leading to an increase in various indicators related to inflation in the financial markets,such as the 10-year U.S.Treasury yield breaking through 4.2%.
Therefore,for the current Federal Reserve officials,the 3.2% CPI has not reassured them.Instead,the financial market movements that have exceeded expectations,along with the still high core inflation rate of 4.7%,have led them to once again signal "continued interest rate hikes."
The U.S.economy is better than expected,but the burden on countries around the world has become heavier.What is the current state of the US economy?There are three main points to discuss: First,the US economy is better than expected overall.Second,the US remains a "black hole" absorbing global funds.Third,the deterioration of Sino-American relations has had an impact.
Firstly,although the US economy is better than expected,it can avoid the previously predicted "hard landing," but for the financial market,it is actually a bearish shock.This means that the Federal Reserve can continue to raise interest rates without restraint to reduce the US inflation rate.After all,the current CPI of 3.2% is still 50% away from the 2% target.
The US continues to harvest the world!
Secondly,the continuation of high interest rates and quantitative tightening means that the US is still a "black hole" attracting funds from countries around the world to flow in continuously.Take China as an example.China is currently adopting an accommodative monetary policy of lowering interest rates to stimulate the economy.The central bank unexpectedly lowered interest rates the day before yesterday to boost the economy and the stock market.
However,due to the Federal Reserve's continued expectation of quantitative tightening and interest rate hikes,as well as the interest rate level of up to 5.25%,the actual interest rate gap between China and the US has widened.The actual interest rate in the US is about 1.5% higher than that in China,which is an abnormal economic phenomenon and not conducive to China's economy and development.
So why is China's economic recovery currently hindered?It has a lot to do with the US's epic interest rate hikes and quantitative tightening,which is also the reason why we dislike and hate the dollar hegemony.
The third is that Sino-American relations also have a certain impact and shock on the US.Although attacking and smearing China has now become politically correct in the US or Western countries,the deterioration of Sino-American relations will indeed cause the US to suffer losses.
For example,China is still a major trading partner of the US.The trade war between the US and China has led to US importers having to bear a 20% tax,which has led to a severe domestic inflation situation in the US that cannot be reduced even through an epic level of interest rate hikes.
China imposes export controls on rare semiconductor materials
Furthermore,following the US's various semiconductor sanctions against China,the US has gradually lost some of the Chinese market,and China has also retaliated and sanctioned.For instance,China has imposed export controls on rare elements such as gallium and germanium,as well as on high-performance drones (imported by the United States to sell to Ukraine),along with a series of countermeasures.This could also lead to a "backlash" effect on the U.S.economy.
The United States will continue to reap the world
From the current perspective,despite our high expectations,the Federal Reserve's pace of reaping the world has not slowed down; the hawkish Federal Reserve seems to have no intention of completing interest rate hikes,and the continuous shrinking of the balance sheet also means that the United States will continue to "destroy" dollars from the market,making the dollar more valuable.
For developing countries,including China,they will continue to bear the suppression of the economy by interest rate hikes and balance sheet reduction,making it even more difficult to recover the economy.
The competition between China and the United States is far from over!
Last year,the market once judged that the Federal Reserve would cut interest rates in the middle of this year,and the world economy was about to recover.However,when it really came to this time point,we judged that the earliest interest rate cut by the Federal Reserve would be next spring.
But according to the current situation in the United States,we should not be too happy too soon.The Federal Reserve has not withdrawn its sickle to reap the world,and the negative impact of the dollar hegemony is far from over!
