Understand the Fed's monetary policy framework from three dimensions
"Global Finance and Economics": The minutes show that it is expected that more interest rates will be raised this year, and the pace must be slowed. You think you may add a few interest rates during the year. What is the interest rate hike?
Yang Zirong: The minutes of the Federal Reserve's June interest rate interest meeting showed that most members agreed to suspend interest rate hikes once in June. At the same time, they thought that they would raise interest rates 1-2 times during the year, and the interest rate hike was about 25 to 50 base points.How to understand the interest rate hike arrangement like the United States?I think we can look at the Fed's monetary policy framework from three dimensions, that is, the speed, height and duration of interest rate hikes.
In 2022, inflation in the United States has risen quickly, so the Fed is most focused on the rate of interest rate hikes, and it adopts catching up with inflation rate hike strategies.In 2023, the inflation in the United States has been in a significant downward channel, so the Fed slows down the rate of interest rate hikes, and pays more attention to the height and time of interest rate hikes.So for the June interest interest interest interest interest interest interest interest interest interest interest interest interest interest interest interest interest interest interest interest interest interest interest interest interest interest interest interest interest interest interest interest interest interest interest interest interest interest interest interest interest interest interest interest interest interest interest interest interest interest interest interest interest rate
interest rate cut depends on employment, inflation and financial stability
"Global Finance Link": In the past seven months, the core PCE has been hovering in the range of 4.6%-4.8%.What kind of challenges do inflation return to the Federal Reserve's setting?From this perspective, how far is the interest rate cut?
Yang Zirong: The current core inflation of the United States shows strong viscosity.The core inflation of the United States is mainly driven by wages, and the salary depends on the supply and demand of the labor market. We can see that the supply of the US labor market is in a state of continuous shortage.about.On the other hand, the demand for labor is very strong, and the vacancy rate and resignation rate of jobs are still high.Judging the core inflation trend in the future, mainly depends on whether the supply and demand in the labor market will improve.
From the perspective of the supply side, the loss of the 0.7 percentage of labor participation rate is mainly contributed by the retired people in advance.This part is unlikely to return to the labor market, so the supply of labor markets is difficult to get fundamentally improved.Therefore, it can only look at the demand of labor, that is, only when the unemployment rate rises, the demand for the labor market will decline, the growth rate of wages will fall, and the core inflation will decline.
The conditions for the Federal Reserve's interest rate cuts mainly depend on the combination of different circumstances of employment, inflation and financial stability.The most likely situation is an increase in unemployment rate and the core inflation.The Fed needs to weigh between the two, but the difficulty is that it is currently impossible to predict the rate of rising unemployment rate and the speed of downward inflation.In case of situation, if the inflation is down rapid and the unemployment rate is slow, the Fed may slowly cut interest rates.Situation II, if inflation slows down, but the unemployment rate has increased sharply or financial risks rises, the Fed will be in a dilemma, but the possibility of cutting interest rates will also rise.
The Federal Reserve Maintain Economic Recession Judgment
The minutes said that the Federal Reserve is working hard to cope with complex economic prospects.On the one hand, inflation is risky, and on the other hand, economic growth is facing downward risk.The Fed's judgment of continuing economic recession is expected to start around October and continue until March next year. The decline process will be mild.However, the Federal Reserve also said that the economy does not rule out the slow growth of the economy, thereby avoiding the possibility of recession.
