29/08/2022
Since the beginning of this year, great changes have taken place in the global economic and financial environment, and macroeconomic policies have begun to shift from the expansion stage to the contraction stage. Affected by the record high inflation, the Federal Reserve has started to raise interest rates in a "big and fast" manner. It has raised interest rates four times in the year, and has raised policy interest rates by 225 basis points.
The continued high inflation in the United States is affected by cyclical and long-term structural factors. On the one hand, after the outbreak in 2020, the United States adopted fiscal and monetary policies that far exceeded demand to stimulate the economy. After the recovery of the US economy and the restart of demand, the sequelae of excessive stimulus began to appear. On the other hand, the adjustment of industrial chain diversification and the prevalence of populism have led to the left leaning of economic policies. After the outbreak of the conflict between Russia and Ukraine, the world has paid more attention to the consideration of geopolitics and other security factors in the layout of the industrial chain from the national to the enterprise level, and the trade cost has increased.
It is difficult to determine whether the US inflation has peaked, and there is still a great risk that both inflation and interest rate increases will exceed expectations in the future. Judging from the sensitivity tests of various CPIs in the United States, the recent inflation is not likely to fall. If the oil price and the core service industry are slightly adjusted, the US inflation in the third quarter of this year may have a second slight charge. Judging from the current inflation width, about 90% of the commodity items have increased by 2%, indicating that the US inflation is close to the 1980 level, which means that it is more difficult to judge the inflation situation, and there is a great risk that the US inflation and interest rate increase in the future will exceed expectations.
The US interest rate may rise to 3.6% - 3.7% by the end of this year. After this round of interest rate increase, the US interest rate will far exceed the average value of the previous decade, and the interest rate center will also rise. This also shows that there are structural factors in the upward trend of inflation. It is difficult for CPI to return to the 2% state. In the future, the US inflation center may be 3% - 4%.
A sharp increase in interest rates by the Federal Reserve is bound to cause a technical recession in the United States, but this recession will not have a long-term negative impact on the US economy. The US economy can still recover its annual growth rate of 2% after the recession. The balance sheets of American households and enterprises are healthier in this cycle than in 2008, and the savings rate of residents is also higher. Therefore, it is likely to survive this technical recession. The worst performing sectors are us junk bonds or mortgage loans, but their total amount in the financial system is far less than that before the 2008 financial crisis.
In addition, the global recession caused by the US interest rate hike is beneficial to the US dollar in the short term. In the process of tightening monetary policy in the United States, the performance of different countries is obviously differentiated. The market believes that Europe and developing countries will be more affected, and the US dollar is stronger because of its risk aversion.
On the one hand, the depreciation of the euro against the US dollar is due to economic fundamentals. Affected by the conflict between Russia and Ukraine, energy prices in Europe have risen, and the risk of economic recession in Europe is higher than that in the United States. On the other hand, the market is worried about the recurrence of the European debt crisis. In addition, as the mainstay of the EU economy, Germany has a trade deficit for the first time in 30 years, and the market is even more worried about the eurozone economy.
