Is the U.S.economy experiencing a "soft landing" or a full-blown recession?The current situation is highly complex,with many previous economic data indicating that the U.S.economy has already achieved a soft landing.
Has the U.S.economy entered a recession?
However,recently the U.S.released a "Federal Reserve Beige Book," which not only suggests that the U.S.economic growth is slowing down but also implies that after a brief pause,the Federal Reserve can raise interest rates again.
Today,we continue to discuss whether the U.S.is in recession or experiencing a soft landing,and what the future interest rate hikes will look like.
Schrödinger's U.S.Economy: Soft Landing or Economic Recession?
The information presented in the Federal Reserve Beige Book is vast.Overall,it believes that while the U.S.economy remains resilient,there are signs of a recession.
First,let's look at why the U.S.economy has not entered a recession:
1.After the Federal Reserve's continuous interest rate hikes,there are indeed signs of slowing inflation in the U.S.economy.Coupled with the continuous increase and overall scarcity of labor,this has led to more recruitment and consumer spending in the U.S.The massive monetary easing that began during the Trump era also left U.S.households with more savings,supporting this consumption and domestic demand.
The quantitative easing initiated by Trump injected a large amount of capital into the U.S.economy.
2.The pandemic in the U.S.a few years ago reversed the previous consumption patterns in the U.S.,suppressing demand for goods and housing.Even with the Federal Reserve's large-scale interest rate hikes,those suppressed demands will still be released.This is similar to the "revenge rebound" that China experienced shortly after its reopening last year.Thirdly,the U.S.government has implemented a more massive economic stimulus plan.For instance,after the Biden administration took office,they introduced an economic stimulus plan worth trillions of dollars,followed by the Inflation Reduction Act and the CHIPS and Science Act,worth $53 billion,which is equivalent to the U.S.government pumping money into the economy.Moreover,the intensity is quite significant.
Biden Signs the CHIPS and Science Act
Due to the aforementioned three reasons,despite the Federal Reserve's large-scale interest rate hikes since last year,the U.S.economy has remained relatively resilient,breaking our previous expectation of a "Great U.S.Economic Recession."
It can be said that the United States,as a superpower with a background in finance and economics,still has some trump cards to save the economy.
However,behind the facade of prosperity,has the U.S.economy truly achieved a soft landing?Not necessarily.
By analyzing the three reasons mentioned above,we find that what is currently sustaining the U.S.economy is still the "foundation" left over from the massive money printing in previous years.And as time continues to stretch,the fundamental driving force behind the prosperity of the U.S.economy will cease to exist.
Furthermore,the Federal Reserve continued to raise interest rates by 25 basis points in July,continuously increasing the U.S.federal funds rate,thereby making the financing costs in the U.S.market higher.This will severely and persistently damage the U.S.economy.
The Federal Reserve's 25 basis point interest rate hike in July further pushes up U.S.interest rates.
For example,the savings that American households accumulated in the past few years have almost been depleted.If they want to maintain their interest expenses,they can only do so through the preferred method of overdrafts and credit card consumption by Americans.And these interest rates will increase with the Federal Reserve's interest rate hikes.
For instance,the U.S.credit card interest rates have already exceeded 20% after the recent rate hikes.
Furthermore,it is also more difficult for Americans to borrow money for consumption now.This is because several banks,including Silicon Valley Bank,went bankrupt at the beginning of this year.The continuous interest rate hikes by the Federal Reserve have led to operational difficulties for U.S.banks and tight cash flows.In order to ensure their own safety margin,U.S.banks have currently seen a situation of "contracting lending," which is actually detrimental to the economy and consumption.China,however,has not experienced any banking sector explosions,so it can stimulate the economy and consumption through large-scale lending.
Additionally,the difficult debt issues faced by the U.S.government mean that each time the U.S.Treasury issues Treasury bonds,it has to bear a substantial amount of interest expenditure.It is projected that the U.S.government will spend more than $1 trillion annually on interest payments in the future,which already exceeds the annual expenditure of the U.S.military.
The interest expenditure on U.S.Treasury bonds is as high as $850 billion.Breaking the trillion mark is imminent.
Therefore,despite the U.S.economy still performing well currently,our analysis indicates that due to a lack of momentum,the future performance of the U.S.economy will not be very good.There are significant hidden concerns,which will lead the U.S.economy from its current soft landing state towards recession!
The U.S.Dollar Index soars!Expectations of Federal Reserve rate hikes increase?
However,despite the U.S.economy moving towards recession,more and more economists still believe that as long as the U.S.economy remains robust currently,there is no need to worry about what will happen in the future.Financial market data also supports this view.
Firstly,the U.S.Dollar Index has been very strong,with the current index around 104.9,close to a six-month high,while the yield on U.S.Treasury bonds has reached as high as 4.278%,showing a continuous increase.
Good economic data,along with the rising U.S.Dollar Index and Treasury bond yields,all indicate that the Federal Reserve will continue to raise interest rates.If the future CPI inflation index further increases,the expectations for Federal Reserve rate hikes will also rise.Moreover,due to the previous joint announcement by Saudi Arabia and Russia to continue reducing oil production by 1.3 million barrels per day,the significant rise in international oil prices will also lead to a sustained increase in U.S.inflation.
Overall,after a pause at the September interest rate meeting,the probability of the Federal Reserve continuing to raise interest rates in November has already reached 43.4%.And this November rate hike may also be the "last rate hike" of this cycle by the Federal Reserve.
Will the U.S.experience a recession unless a miracle occurs?The US economy is inevitably heading towards a recession,according to the view of renowned American economist Rosenberg.
He believes that the Federal Reserve's large-scale aggressive interest rate hikes will lead to higher interest rates in the market,and it is these high interest rates that will ultimately collapse the US economy.
Rosenberg thinks that the US economy will continue to decline.
He also cites historical data to prove his judgment: for example,out of the past 14 interest rate hikes,there were 11 major recessions,which is an inevitable consequence of high interest rates backfiring on the economy.The inversion of US Treasury yields also indicates that the US economy will experience a recession.This is the inevitable cost that the US has to pay for stimulating the economy through money printing and easing.
So,how will the future US economy develop?Rosenberg believes that the US economy will inevitably fall into a minor recession unless a miracle occurs.According to data from the Chicago Mercantile Exchange,the Federal Reserve's interest rate hike rhythm will likely include one rate hike in November,with a higher probability of pausing rate hikes in December.
This also means that the Federal Reserve's interest rate hike,which harvests the world like a scythe,will swing once more,continuing to impact China's economic recovery and adding a certain amount of bearish pressure to our external environment.We must also be vigilant and prepared in advance according to the rhythm of the Federal Reserve's interest rate hikes!
