Despite our reluctance to admit it,the end of this global recession is indeed determined by the monetary policy of the Federal Reserve.When the United States will cut interest rates to end this recession cycle still depends on the Consumer Price Index (CPI) inflation data.However,the latest CPI data released for August is not optimistic.
The United States releases CPI data,putting the Federal Reserve in a dilemma
According to data from the U.S.Department of Labor on Wednesday night,the U.S.CPI rebounded from 3.2% in July to 3.7% in August.This is not only the second rebound of inflation in the United States this year,but it also exceeded the expected 3.6%.
So,what negative effects will the severity of U.S.inflation bring?What impact will this have on China's economy?Let's discuss this topic today.
Will Saudi Arabia and Russia take action?Severe inflation tests the United States,putting the Federal Reserve in a dilemma?
Since March of last year,the United States has hoped to curb the increasingly severe domestic inflation.To this end,the United States has not hesitated to adopt a combination of interest rate hikes and balance sheet reduction,attempting to tighten the dollar and promote the global flow of dollars back to the United States to reduce the amount of money in the market,thereby curbing inflation.
The Federal Reserve reduces its balance sheet to deal with the inflation crisis
By June,the U.S.CPI index had already dropped to 3%,just a step away from the Federal Reserve's inflation target of 2%.However,it was unexpected that within just two months,the U.S.CPI rebounded to 3.7%.This puts the Federal Reserve in an extremely awkward position.
U.S.inflation has rebounded consecutively
What led to the failure of the U.S."inflation sniper war"?The main reason is the rise in energy prices.The international oil prices in August have already begun to show signs of rising,entering an upward channel,leading to an increase in gasoline prices in the United States,which in turn has driven up domestic prices.This was caused by the previous production cuts by OPEC countries.And what's worse,at the beginning of September,Russia and Saudi Arabia,two major OPEC countries,jointly announced the extension of oil production cuts.The two countries will reduce oil production by 1.3 million barrels per day to ensure that international oil prices remain within a "reasonable" range.The current international oil prices have been continuously soaring,with Brent crude oil already exceeding $90 and approaching the $100 mark.
This means that inflation in the United States will continue to rise in September because during the period of surging global oil prices,the U.S.Consumer Price Index (CPI) is highly correlated with gasoline prices.This will lead to the U.S.CPI index approaching 4% in September.
Russia announced a reduction in oil production.
It can be said that Saudi Arabia and Russia's "joint production cut" this time has directly shattered the possibility of the United States curbing inflation,and is leading the United States into a deeper recession,reminiscent of the oil crisis 50 years ago.
The Federal Reserve is also in a "dilemma."
Firstly,although the Federal Reserve holds the global financial lifeline,the oil fields of Saudi Arabia and Russia are not under the jurisdiction of the Federal Reserve.Therefore,as long as Saudi Arabia and Russia continue to reduce production,there will be a gap in global oil production,which will lead to a continuous rise in international oil prices and an escalation of inflation in the United States.This forces the Federal Reserve to find a solution.
The Federal Reserve actually has ways to solve the problem in the face of rising oil prices,but whether it continues to raise interest rates or pours cold water on the relatively good employment market in the United States,
the price is to stifle the recovery of the U.S.economy,turning the U.S.economy from a "soft landing" state to a recession.This is something the U.S.Federal Reserve does not want to see.
So the Federal Reserve now hopes to raise interest rates to curb inflation,but the weak U.S.economy is difficult to bear the Federal Reserve's unexpected interest rate hikes.At present,the Federal Reserve may only have one opportunity to raise interest rates within the year,and when to announce the interest rate hike is something Federal Reserve Chairman Powell needs to consider.
Is there no hope for a global economy without interest rate cuts,and will the dollar hegemony continue to harvest?
Since the United States started raising interest rates in 2022,many people have been guessing when the United States will exit the interest rate hike cycle.From the prediction at the end of last year that it would be in June 2023,to the current distant future,it is indeed difficult for us to judge when the Federal Reserve will exit the interest rate hike cycle.And as long as the Federal Reserve continues to maintain high interest rates,the global economy will find it difficult to improve.So,currently we believe that the Federal Reserve will not opt for a rate cut before the end of this year,but will continue to maintain higher market interest rates to curb inflation,thereby fulfilling the task and mission of keeping the inflation rate below 2%.
However,while the U.S.approach is beneficial for domestic inflation,it is a very significant bearish news for other countries,because the more aggressive the U.S.raises interest rates,the worse the global economy becomes.
The European Central Bank announces continued rate hikes
As the Federal Reserve continues to maintain a high U.S.dollar exchange rate,it will continue to attract global capital to flow to the United States,which means that foreign capital outflows will occur in various countries.The European Central Bank,which has been following the Federal Reserve's rate hikes,is no exception.Euro rate hikes will also lead to capital inflows from developing countries to Europe and the United States,causing a "shortage of money" in countries around the world,which is not conducive to economic recovery.
In addition,for developing countries including China,due to excessively high U.S.dollar interest rates,the local currency continues to depreciate.On the one hand,this continues to increase the pressure of capital outflows,and on the other hand,it will lead to currency collapses in many countries.For example,the currency of the South American powerhouse Argentina has collapsed,and the Turkish currency has also depreciated severely.
The collapse of exchange rates will also lead to the exhaustion of foreign exchange reserves in these countries,turning their currencies into waste paper.The wealth created by the hard work of the people in these countries is repeatedly harvested by the United States,leading to a mountain of debt,and even having to accept "assistance" from the United States and other countries under certain sovereignty-related conditions.This can then evolve into a crisis.
If this crisis continues,a large-scale debt crisis may emerge.The Latin American debt crisis decades ago was triggered by the Federal Reserve's rate hikes.If agencies such as the FBI and CIA in the United States continue to "make trouble," then "regime changes" may occur in some countries,thereby achieving certain political goals of the United States.
In the Argentine elections,the extreme right-wing leader received the most votes,causing turmoil.
Therefore,why do we oppose the dollar hegemony?Why do we oppose the United States' abuse of monetary policy?The tragic experiences of countless developing countries are the facts.According to data from the Gates Foundation,if the Federal Reserve continues to raise interest rates,then 113 developing countries (excluding China and Russia) will pay more than $2.5 trillion in debt within 5 years.
The more aggressively the Federal Reserve raises interest rates,the more debt developing countries have,the worse their economic development,the more people will lose their jobs,there will be no work,factories will close down,and this is the side effect of the Federal Reserve's rate hikes.In such a situation,there is no way to improve it this year,and we can only wait and see when the Federal Reserve will "show mercy" and lower interest rates next year.How does the Federal Reserve's interest rate hike affect China's economy?
As the world's second-largest economy,China naturally will not be easily harvested by the Federal Reserve like some small countries,but it must be admitted that the Federal Reserve's interest rate hike still has a significant negative impact on China's economy.
Firstly,there is the continuous depreciation of the Chinese yuan exchange rate,for which the Federal Reserve must bear a large responsibility.Due to the insufficient degree of yuan internationalization,after the Federal Reserve's interest rate hike,the US dollar appreciates quickly,and the yuan is passively devalued.This affects the stability of China's exchange rate.The central bank has also had to intervene multiple times.
The central bank has intervened multiple times to stabilize the yuan exchange rate.
Secondly,the widening interest rate gap between China and the United States is a concern.The Federal Reserve's interest rate hike increases the attractiveness of the US dollar,leading to international capital flowing out of China and into the US market.Even domestic funds will enter the Hong Kong and international markets through various legal and illegal means to enjoy high US dollar interest rate returns.
Thirdly,the Federal Reserve's interest rate hike affects China's economy.As one of the three pillars of China's economy,foreign trade is one of the three major pillars supporting China's economic development.However,after the Federal Reserve's interest rate hike,the global economy falls into a recession,and the demand from people abroad decreases,leading to a reduction in China's foreign trade orders.
The Federal Reserve's interest rate hike leads to a reduction in China's foreign trade orders.
Therefore,looking at the curve of China's exports,we can see that since the Federal Reserve's interest rate hike began,the year-on-year export growth rate of China's foreign trade has been declining.Many domestic foreign trade factories have seen a reduction in orders,workers have become unemployed,and income has decreased.This is inseparable from the Federal Reserve's interest rate hike,as it has plunged the world into a "small recession cycle." China's economic recovery will also be slower than previously estimated.
In summary,although China is already the world's second-largest economy,we still cannot influence the Federal Reserve's interest rate hike policy.We can only continue to entangle with the United States and fight against the United States' trade wars,semiconductor sanctions,and decoupling,and other containment measures.We must be prepared for a long-term "struggle" with the United States.
At the same time,we also need to realize that pessimism is meaningless.The Federal Reserve wants to maintain such high interest rates,and the cost it pays is also very high.The current debt of the United States is high,with a debt of up to 32 trillion US dollars,and the interest paid annually is as high as nearly 90 billion US dollars.This is unacceptable to the United States.So the Federal Reserve is also very troubled and hopes to lower interest rates as soon as possible.
So,will the Federal Reserve choose to raise interest rates to curb inflation,leading to a recession in the US economy,or will it choose to give up raising interest rates to prevent the US economy from sliding?This troublesome problem is still left to Powell to choose.
