British Finance ｜ On the risk of US economic recession, can the United States avoid economic recession?

In May, the United States inflation reached 8.6%. In addition to a 40 -year high, it also made the Fed once again. Because of the Federal Reserve's May meeting in May, inflation was threatened. Inflation data in the United States consists of five parts, namely energy (30%), house/wood (20%), automobile (20%), food (13%), and service industry consumption (17%). The largest US gasoline prices have not been softened, and food prices have continued to rise. The situation makes the market repeatedly worried that inflation will crack down on the US economy and push the United States into a decline cycle.

US gasoline prices (in the past 5 years)

American Food Price Index (over the past year)

Introduction to British Financial Advanced: It can be seen from the US gasoline prices that the recent increase is half of the average price in the past, and energy consumption has also accounted for about 30%of the general US families in the United States. When gasoline prices have soared, energy consumption has risen to more than 50 %. The average increase in food prices in the past year has increased by more than 30%. The cost of energy and food is raised, and it naturally cracks down on consumption.

Take the case of interest rate hike in 1994 as an example: wrong

Inflation is mainly caused by demand, promotion of supply, and depreciation of currency. The problem of response to solving the problem of inflation is required. The current inflation pressure is due to geographical politics and epidemic conditions that have broken supply and production chain. In the face of post -epidemic recovery, large government stimulus plans, and consumption upgrades of home consumption, it has driven consumption upgrade, and the central bank's wide policy and purchase of garbage debt Fund bubbles, combined with supply and demand to push inflation at the same time. Among them, the epidemic and geopolitics are relatively large, and the central bank and government policy errors are naturally related, but they cannot solve problems from a single central bank policy.

US federal interest rates and US inflation data (1990-2000)

Introduction to British Financial Advanced Tips: The inflation problem in 1994 was mainly related to continuous interest rate reduction and loose monetary policy after 1990. At that time, Green Panpan was foreseeing the inflation and market bubble crisis through the statistical model of population development. The pace of interest and successfully softened the economy.

Will the United States face the risk of economic recession?

Because the White House did not have the inflation caused by the response and geographical politics, and in the resolution of Biden's many sanctions, Biden said that it was necessary to defend the price of democracy. Make adjustments, and solve the problem of supply chain and production chain at the same time. In the end, inflation to combat the economy, and pushing the US economy into a decline is a high probability incident. Therefore, in addition to the probability of increasing the economic recession of many investment in the United States recently, even the US President Biden had to face this issue!

Introduction to British Financial Advanced Tips: What is the economic recession? According to the official explanation: "Continuing the economic negative growth for two seasons, the signal includes a high loss rate, low GDP growth rate or negative growth, labor salary shrinkage, and retail sales."

Has the US technology fell into decline?

The US consumption confidence in the United States hit a 44 -year low, the Philadelphia manufacturing index fell to 3.3%, and the construction of the new house also fell 14.4%. The first quarter of the United States, which was announced earlier, also shrinks 1.5%. In the United States GDP, domestic demand consumption accounts for more than 70 %. Only the distorted employment data remains strong, but under the strike of consumer data obviously, the possibility of the United States' decline in the United States gradually heated up.

The consumption confidence index fell to 44 years in June

Advanced Financial Finance: Basic formulas for GDP, GDP = private consumption + investment + government consumption + (export -entrance)

The U.S. government is still unable to stimulate consumption?

The GDP data announced earlier in May did not have a shrinkage of the market and did not make a serious panic in the market. It was because the entrance and exit deficit was dragged down, and the consumption data remained stable at the time, but the newly announced consumption data was not ideal. Some surveys pointed out that 70%of the U.S. citizens are using deposits to pay rapid prices, reflecting that inflation has begun to erode US national income and forced consumption to shrink.

If the GDP shrinks for two consecutive seasons, it will be confirmed as a economic recession signal. Generally speaking, consumption is the data that reflects the market conditions first, and GDP and employment data will also have lag.

Federal Reserve Statistics Personal Savings ratio (over the past five years)

What are the solutions to solving consumption shrinkage and going and go, including: tax cuts, strengthening government stimulus plans, promoting investment, interest rate reduction, depreciation of currency to export, combating inflation, and avoiding shrinkage. But the above methods are probably not used in the White House.

First of all, the Democratic Party and the Biden government promised to increase taxes and promote the minimum tax rate of enterprises to reduce the US government deficit. It has been launched many times and infrastructure plans. In mid -2021, the $ 1.9 trillion rescue plan was even more promoted. The new cases that have not been implemented have been opposed by the Democratic Conservatives because they are worried that the plan will further promote inflation. The new stimulus plan is not high;

As for the promotion of investment, it is also subject to the epidemic, and the concept of retaining home after the epidemic and the upgrading of science and technology see excess investment. Channel, so invest in inverse repurchase tools with nearly zero interest rates, that is, funds are now available.

The Fed's inverse repurchase tool has continued to rise since 2021, implying that the owner believes that the market has no investment channels, and also reflects the Federal Reserve's continuous purchase of debts in mid -2021 as the market prompting funds. In addition to increasing unnecessary liabilities, And manufacturing market bubbles, the latest May inflation data of the inflation crisis has continued to reach a 40 -year high. The Federal Reserve has expected inflation to top in the May meeting. It can be seen that the Fed once again made mistakes. In the case of inflation out of control, it is not possible to reduce interest to stimulate consumption. With the expected rate of interest rate hikes, the Federal Reserve is slower than the US recovery slower than the United States, and the US dollar is "difficult" to depreciate.

Advanced Financial Finance: Parents, the author uses "difficult" depreciation, not "impossible". The U.S. government can use market expectations and coordination of the Allied Central Bank to affect the depreciation of the US dollar. The rise and fall of the US dollar is not purely self -determined by the market. From another perspective, if Bayeng or Yellen suddenly expressed the need for weak dollars, it would also hit the strength of the dollar.

The Federal Reserve squeeze toothpaste to raise interest rates: imply that the bureau's early expectations of recession have a chance to happen

If the White House does not stimulate consumption, the situation of further shrinking GDP will have a greater opportunity to occur, and the rate of loss of business will gradually rise. When the unemployment rate is bottomed out, the market will break out of fear. It is believed that the Federal Reserve's current interest rate hike is that the opportunity to enter the decline in the United States is increasing. In order to delay the panic of the recession, it is just a promotional interest rate hike operation. It is expected that the central bank's speech affects the market psychology to reduce pain. The situation is the same as that of Western countries on lying flat and promoting the vaccine method. Simply put, how long it is to delay, try to delay!

Advanced Financial Finance: Significant interest rate hikes are limited to inflation pressure caused by the epidemic and geographical crisis. In fact, during the 1980s, Walker's administration, if there was no open market in China, discovered the Beihai Oilfield, Computer Revolution and the Square Agreement in 1985. It is still unknown whether the United States can get out of the stagflation crisis by interest rate hikes. However, when the media described the incident, it deified the history of the Fed's interest rate policy.

US inflation rate (blue) and federal interest rate (red) (1976-1984)

Today's situation is worse than in the 1980s

Parents, the increase in the crisis of the US economy's decline may be just the beginning of a series of negative events. Former US Treasury Secretary Summer recently said: "The current environment is more severe than the 1980s, and the risk of hard landing is not low. "The recession in the 1980s ended for more than 5 to 6 years. According to the current situation, if the recession broke out, Biden and the Democratic Party would naturally have a greater opportunity to lose the dominance of the US Congress. Before 2024, the lame duck government is also difficult to do what the economic recession is. The opportunity is not low.

But pay attention, when entering the recession to obtain market consensus, the US government can use the trend to depreciate sharply, and the situation is the same as that after the Brexit has depreciated to stimulate economic means.

Introduction to British Finance: After the financial tsunami in 2008, the United States has also used the same means. If the US dollar depreciates sharply, it will naturally attract funds to invest in the United States, thereby supporting a weak economy. Of course, during the depreciation of the US dollar, the support of gold prices is the most powerful.

The interest rate hike cycle does not necessarily hit the gold price

If we review the gold price performance of the economic recession in the 1980s, when Carter took office, the gold price in 1977 was only $ 130, but in 1978, it saw 250 US dollars, rose to $ 540 in 1979. Falling, but most of the year, it has stabilized in the range of 620 to 700 US dollars. That is, the price of gold has turned 5 to 6 times in Carter's term. Will the situation repeat today? We wait and see.

S & P 500 (blue) and gold price (green) (1976-1984)

Advanced Financial Finance: If you pay attention to the situation in the 1980s, in the early section of the interest rate hike cycle, it does put pressure on the price of gold. However, when the economy declines and worsen, and the interest rate hike cannot catch up with inflation, the price of gold has become a hedging asset against the economic downturn, which rises in the interest rate hike cycle.

Can the United States avoid economic recession?

Recently, Biden and Yellen also said: "Economic decline is inevitable!" Pay attention, this speech itself is acknowledging the decline, and at the same time, it is trying to use the expected management, the intention of slowing down and delaying the market's fear of decline. Whether the United States can avoid economic recession, in the end, still depends on the administrative means and execution of the White House and the Federal Reserve, as well as the benefits of the following problems. include:

1) To solve the problem of supply, production and transportation chain (failure to control the epidemic and rebuild foreign policy, it is difficult to do it)

2) Cancellation of tariffs (in the mid -term selection, the opportunity for full cancellation is low)

3) Elimination of energy sanctions against Iran, Russia, and Venezuela (Democratic Party and Biden are in power, it is difficult to do it)

4) Removal of unnecessary economic stimulus schemes (selected in the middle period, it is difficult to do)

5) (Federal Reserve) Accelerate the shrinkage (Powell performed a mirror in the past, and the lower opportunity occurred)

6) Tax reduction stimulates the economy (this is against the advocacy of Byebang to come to power, it violates the Democratic Party philosophy)

7) Implement targeted aid programs and subsidize public expenses (conservatives in the Democrat

8) Price restrictions (this is a policy that is preparing to implement, but the policy hurts the enterprise at the same time, which also combat the economy)

9) Strike the stock market hype (this violates the so -called support employment market of Yellen)

Introduction to British Financial Advanced Tips: Biden and Yellen's speech can be seen that the US economic recession is already a high probability incident. Yellen also tried to guide the market through expected management. During the decline, the problem of inflation can be suppressed. In addition, in the speech how to guide the employment participation rate to cope with inflation, it completely ignores the impact of geopolitics and epidemic conditions. It once again proves that it has insufficient awareness of the global production chain. Because of the often misunderstanding trend of cognitive errors, I believe that Yelun's credibility has gradually lost market trust, so the proposal cannot be implemented, and the timeliness of hype can also be limited. Ten 10 risk events to trigger decline?

If a decline is a greater opportunity, what happened to have the opportunity to trigger the market fear? That is the gunpowder that triggers gold to reply?

1) The unemployment rate rises above 4%

2) Non -agricultural employment population drops to below 150,000

3) The inflation rate exceeds 10%

4) Upgrade of geopolitical crisis

5) Epidemium: New rapidly spreading severe disorder virus

6) Russia cut off for European energy supply

7) The Democratic Party loses the leadership of Congress

8) Aid asset crisis in financial institutions or artificial errors (have the opportunity to be triggered by virtual assets)

9) Natural disasters: serious blow to energy production

10) The debt market / currency crisis (Europe and developing countries are also facing)

高盛已经提明年步入衰退的可能性调升接近50%，而末日博士鲁比尼更认为年底即有机会步入衰退，企业高管包括马斯克亦加预期衰退队伍，由于市场普遍预期远期The chance of recession has increased, and the opportunity of enterprises to start to reduce investment and reduce people. The number of new announcements in the employment market has gradually weakened.

Advanced Financial Finance: The expectation of recession is one of the classic cases of "Murphy's Law". It can achieve a market psychological orientation, that is, when most people think that things will happen, things will really happen. Therefore, when the market, the more "the United States will enter the recession", the closer to the critical point of decline.

British financial trainer Wayne Lai shared: At the end of the 19th century, there was a manager who played with children in the work room in the work room and snatched the children's money. Customers have misunderstood, squeezed, and then caused small stock disasters. Whether it is rumors or real people, it is also explaining that the stability of the financial market is confidence. When confidence appears crisis, everyone will scramble to realize the assets. Debid and become a disaster. Therefore, it is not possible to be light -minded about the issues of "the United States entering the recession".

The author has a photo with former Fed Chairman Green Panpan, and took a photo of Greens Panpan Washington Office

About the Author

Li Yongda

Hong Kong senior financial practitioners, who have served well -known financial public relations, financial media and investment banks. In the past, service objects include Societe General, CMC Market, KVB Kunlun, etc. At the same time, it is a college guest lecturer, financial media regular guests, and financial books. He has repeatedly represented Hong Kong to attend the World Financial Industry Forum. He is currently the research and market director of British Financial Group and British Financial.

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