How to understand the continuous interest rate hikes of the United States?

Author | Zheng Lei

Chief Economist at Samoyed Cloud Technology Group, understanding APP expert

In the past three months, the Federal Reserve raised interest rates for three consecutive times, and the interest rate hikes have been particularly large, which has aroused market attention and has a great impact on the market itself. How much will this impact cause? What kind of interest rate hikes will the Fed in the future?

I divide a few questions:

In the first question, is the Federal Reserve's three interest rate hike too aggressive? How many times will the Fed ’s interest rate hike? How much will you add in the future? My answer is that the Federal Reserve ’s interest rate hike is very aggressive.

Let's review the Federal Reserve's recent interest rate hikes. The Fed has added five times since the beginning of the year, and has added 300 points, which is 3%, and interest rates have been ranging from 0 to 3%. Such a rate hike speed can be compared with the previous rounds of interest rate hikes. From February 1994 to February 1995, it raised interest rates seven times a year and added 3%. Only five times this year have been added, and it has been added by 3%. This is the fastest ever.

The Federal Reserve raises interest rates so fast. What is the biggest problem? Interest rate hikes will have a fierce impact and impact on the market and the economy. So far, everyone has made some judgments and predictions on the Fed's impact, but has not been fully recognized and priced by the market. In fact, every interest rate hike in the United States has caused fluctuations in the global market and even triggers a market crisis. For example, the rating of the round of 1994 triggered the Asian financial crisis in 1997. From 1997 to 00, it raised interest rates six times, adding a total of less than 2%. In 2000, it broke through the Internet bubble. After the bubble broke, the Federal Reserve urgently took emergency measures for interest rate cuts. The Internet bubble disappeared in a year, but it drumped the real estate market bubble. The interest rate hike from 2004 to 2006 triggered the subprime mortgage crisis. From 2015 to 2018, after the financial crisis, the Fed carried out quantitative and loose operations. After the global economy stabilized, a total of three years had raised interest rates nine times, only 225 basis points. This round of interest rate hikes did not cause a great impact. However, in 2020, the global economy was affected by the epidemic, and the financial market broke signs. The United States quickly cut interest rates to zero. In fact, this is the interruption of the epidemic of interest rate hikes. It is now recovering this interest rate hike process. It is still the problem that the balance sheet caused by quantitative easing after the financial crisis is too huge. In addition to the balance sheet, the inflation problem is very obvious. The goal of interest rate hike is mainly to reduce inflation.

The second question is the Federal Reserve's future interest rate hike path. The experts studying the Federal Reserve have made a lot of predictions in this regard. They are very optimistic that the Fed's interest rate hikes will end in early 2023. Because they feel that the Fed may find that the economic situation is not good, and the inflation is controlled, they will stop raising interest rates, and even reverse interest rate cuts. It now seems that this type of optimism is too different from the positions held by the Federal Reserve. In fact, the Federal Reserve Chairman and some federal market members who voted rights have come forward to reiterate many times. They believe that the biggest problem is inflation. In order to suppress inflation, we must raise interest rates, and the interest rate hike cannot be abolished halfway. They believe that the federal benchmark interest rate should be maintained for more than 4%or more, and it depends on the effect.

According to the Fed's thinking mode, we are now 3%-3.25%. In the fourth quarter, I plan to raise interest rates at least 75 basis points.

I have always believed that the United States cannot raise interest rates this year. Considering the conditions of the United States, the United States has no hike conditions. And I predicted at the beginning of the year that if the United States raised interest rates, it would likely cause unpredictable results this year. But since the United States has raised interest rates and added to a 3%-3.25%range. Now we can only observe and wait for the results. Even if the Federal Reserve wants to raise more than 75 basis points in the fourth quarter, it is difficult to say whether it can be done. But I believe that the Fed officials do have such plans.

What will everyone care about the Fed to stop raising interest rates? My conclusion is that if the financial market crashes, the Fed's interest rate hike will definitely stop immediately. For example, in the 2020 outbreak, the liquidity of US stock bonds dropped sharply and fell sharply. Considering the chain reaction caused by the market shock, the Fed will stop raising interest rates. It is very obvious now that funds flow from the stock market. The performance of U.S. stocks in these months is very poor, and the stock market has already entered a downward channel. If the Fed continues to raise interest rates to more than 4%, U.S. stocks may continue to fall by three or forty, which is equivalent to the collapse of the market a few months ago. The other is the issue of debt. In terms of interest rate hikes from the national debt levels of countries around the world, or from the perspective of corporate debt and family debt, the leverage is very high. Interest rate hikes must increase the pressure of debt repayment. Will default, leading to the collapse of the bond market. During the second year of the financial crisis, we saw the European debt crisis. If this time it broke out, it was the global debt crisis, and the collapse of the bond market also belonged to the market collapse. Of course, the decline in currency exchange rates caused by the return of the dollar due to the return of the US dollar may also cause impact on the currency market. This is very uncertain.

Once the market crashes, the rate hike in the United States will inevitably stop. I believe that as long as the United States raises interest rates in a row, not only will the economy fall hard, but the market and the economy will have hard landing. Therefore, whether the Fed can raise interest rates according to the plan, it depends on the development of the market. Another is political factor, which generally develops slowly. Now the social environment in the United States has become more and more chaotic, which has a lot to do with the economic downturn and the number of unemployed people. The other is the issue of people's livelihood. The inflation is too high, which may cause political pressure. Whether the U.S. government can accept a relatively large economic recession, we must consider the pressure of re -election in the presidential election. Under pressure, it is uncertain whether it can take care of the economy and inflation. For the United States, the idea of ​​the US government's president and the Federal Reserve's decision may not be very close in time, but there is often a very close connection between it, which is actually a factor affecting the Fed's decision to make interest rate hikes. In addition, the Fed must consider shrinkage while raising interest rates, which has put greater pressure on the market and economy.

What is the theoretical basis for the Federal Reserve? The Fed is only responsible for formulating monetary policy, and monetary policy tools are relatively simple. In fact, it is to regulate the currency liquidity in the market. However, American economic issues are actually not just caused by currency liquidity. For example, we see many wave foam on the water surface, which is caused by liquidity, but once you remove the foam, the underwater may be a very difficult to control torrent of torrential torrents. Essence This torrent is the problem of the long -term industrial economic structure disorders in the United States. His industrial sector is too empty. Although it is high -tech, it lacks the support of many manufacturing chains. The virtual economy in the United States is very developed, especially finance, which has led to a series of serious structural problems that are now. The United States should be aware of the problem, but as far as the US free market system is concerned, the economic structural problem has not been solved. The water release must arouse the foam and waves without flowing into the real economy, adjusting and changing existing existing existing Economic structure.

Let's see how the inflation in the United States is caused? Inflation is a contradiction between supply and demand at any time. The demand is greater than the supply, the price will rise, inflation will occur in the daily commodity market, and it will also occur in the large market or financial capital market. Before 2022, inflation in the United States mainly occurred in the capital market. There seemed to be no top in the stock market. The funds were mainly arbitrage in the financial capital system. After the epidemic is gradually calming this year, the real economic department is recovering, and inflation is naturally more and more reflected in the real economy, especially in the general commodity market. If the Fed wants to lower the CPI, one way is to exert the power of the supply side so that the supply can meet the demand, and the price will decrease; the other will reduce demand, and the demand will be reduced by increasing interest and suppressing economic activities and consumption. When the demand is reduced with his supply, the CPI will be reduced to a reasonable level.

However, the Fed cannot improve the supply of economy, and the US government has no better way. In the free market economy, the market is organically grown. Structural imbalances can only be completed by adjusting the industrial structure. Enterprises are spontaneous adjustment of the main body. The supply problem cannot be solved, and there are many other factors, such as the logistics block caused by the epidemic, and the incomplete domestic supply chain, which have caused the supply to not meet the demand, so it can only apply pressure on the demand side.

Is the Fed's reduction in demand? The wages of the United States have risen in recent months. The salary of employees is rising, and energy and food prices are rising. It is difficult to solve these two aspects. "". However, in order to curb the inflation and survival of the broken arm, the Federal Reserve's policy tools are limited and can only be done. In the process of curbing inflation, it will cause economic hard landing and economic recession or depression. After the CPI is reduced, the Fed hopes to restore the economy by then. This idea may be theoretically feasible, but there is almost no successful precedent.

Some experts say that the US economy is very strong, especially US government officials, but the United States has declined for two consecutive quarters of GDP, which has met their definition of economic recession standards. Some research institutions recognize the macro of the US economy without depression, and the micro is very strong. This "very strong" refers to some short -term indicators, such as the number of unemployment statistics, the speed of wage increase, etc., and has nothing to do with the growth rate of macro indicator GDP. The actual situation is that about 60%-70%of the labor participation rate in the United States, that is, 30--40%of the labor population will not have a job at all, and the actual employment rate is not high.

The U.S. interest rate hikes will affect the global economy and market, and the short -term hidden danger is the market collapse. The long -term negative impact on the global economy cannot be avoided. In 2023, the global economy will enter a state of depression.

Infay interest rate hikes will have the impact on some major markets, such as the exchange rate trend of the dollar. The US dollar exchange rate is actually driven by the US dollar index. When the US dollar index is calculated, it is necessary to consider the relative advantages of other US dollars on other major currencies, one of which are euro, as well as RMB, yen, pound, and so on. The economic probability of Europe will continue to decline, its currency is soft, and the exchange rate of the US dollar will strengthen. Another factor is the issue of the US dollar backflow. After the Federal Reserve raises interest rates, the allocation of large -scale assets will definitely change. The yield of some high -risk assets will reduce the attractiveness of investors. A considerable part of the capital will be transferred from the stock market to debt Municipal and other investment products, such as commodities and gold markets, will be partially diverted. The Federal Reserve does not stop raising interest rates, and the trend of the strong dollar of the US dollar is still tenacious, but the trend of the decline in the stock market is still relatively obvious. Due to the downturn of major economies such as the United States, the European Union, China, Japan, the price of commodities is declining. Essence In an environment of economic recession, the attractiveness of gold with the main function of value preservation is not high. On the whole, it is not optimistic in 2023, but I think that in 2025, the global economy is likely to re -enter a new growth cycle.

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