On June 15, in Washington, the capital of the United States, Federal Reserve Chairman Powell attended a press conference and announced a 75 basis point interest rate hike. In recent months, in order to curb inflationary growth, the Federal Reserve has continued to accelerate the

On June 15, in Washington, the capital of the United States, Fed Chairman Powell attended a press conference and announced an interest rate hike of 375 basis points.

Photo by Xinhua News Agency reporter Liu Jie

In recent months, in order to curb the growth of inflation, the Federal Reserve has continued to accelerate the pace of interest rate hikes, causing market concerns. Some people believe that the Federal Reserve may suppress the demand side in the process of fighting inflation, which may cause the U.S. economy to "enter another recession." The International Monetary Fund (IMF) recently released a report, lowering its 2022 U.S. economic growth forecast to 2.9% from the 3.7% forecast in April, believing that the path for the United States to avoid economic recession is narrowing.

Federal Reserve Chairman Powell recently said that after the Federal Reserve's historic interest rate hike in June, the economy is "likely" to decline, and achieving a so-called "soft landing" has become very challenging. According to the " Wall Street Journal ", this comment is equivalent to an implicit admission that with the tightening of monetary policy, the risk of a U.S. economic downturn has increased.

Interest rate hike "walk quickly"

According to US media reports, on June 15, local time, the Federal Reserve announced a 75 basis point interest rate hike, raising the benchmark federal funds rate to a range of 1.5%-1.75%, the highest level since November 1994. The maximum single interest rate increase. It is worth noting that this is the third time the Federal Reserve has raised interest rates this year. In March and May, the agency raised interest rates by 25 and 50 basis points respectively. The Fed expects the benchmark federal funds rate to reach 3.25% to 3.5% by the end of the year - which would be the highest level in the United States since 2008.

Recently, Federal Reserve Chairman Powell revealed that the Federal Reserve will raise interest rates by at least 50 basis points in July and does not rule out the possibility of another substantial increase of 75 basis points in order to "firmly bring the U.S. inflation rate back to the 2% target." .

Currently, the inflation problem in the United States is becoming increasingly serious. According to the Wall Street Journal, the U.S. Department of Labor recently released data showing that the U.S. consumer price index rose 8.6% year-on-year in May, the highest increase since December 1981. The report said that soaring energy and food prices have pushed up prices, with few signs of when the upward trend will ease.

"Since the outbreak of the new crown pneumonia epidemic, the Federal Reserve's monetary policy has undergone tremendous changes." Chen Fengying, a researcher at the Institute of World Economics at the China Institute of Contemporary International Relations, pointed out to this reporter that in 2020, in order to support the U.S. labor market and economic recovery, the Federal Reserve once It announced that it would allow the inflation rate to be "moderately" higher than 2% and quickly implement zero interest rates and unlimited quantitative easing policies. In 2021, when prices have risen significantly, the Federal Reserve has been slow to respond, constantly releasing "inflation temporary" signals to the market, and ignoring the structural problems behind inflation. As the past two U.S. governments have successively introduced multiple economic stimulus bills, as well as the outbreak of the Russia-Ukraine conflict, which has led to an increase in international commodity prices, coupled with hot money speculation, the U.S. inflation problem continues to intensify. Under the combined influence of multiple factors, the U.S. government was in a hurry and failed to respond. The Federal Reserve policy had to make a "sharp turn" and speed up the rate hike and balance sheet reduction in order to curb domestic inflation as soon as possible.

"From believing that inflation is a 'temporary problem' to acknowledging that it is the 'most important problem', the Federal Reserve's understanding and judgment of inflation have gone through a process of adjustment. Overall, the U.S. monetary policy is moving further towards tightening "Yang Panpan, deputy director of the International Finance Research Office of the Institute of World Economics and Politics, Chinese Academy of Social Sciences, analyzed that the Federal Reserve is trying to guide market expectations through large-scale interest rate hikes to prevent high inflation from turning into a long-term trend.

The market is very worried

On June 28, local time, The Conference Board released data showing that the U.S. consumer confidence index dropped further to 98.7 in June from 103.2 in May, the lowest level since February 2021. , reflecting that the high level of inflation has had a serious impact on U.S. consumer confidence. On the same day, the US stock market closed sharply lower amid a massive sell-off, as investors became increasingly concerned about rising recession risks and declining corporate profit prospects.

Analysts pointed out that the inflation problem will not be solved quickly because of the Federal Reserve's interest rate hike.At the same time, as monetary policy tightens, the risk of a U.S. economic downturn may rise. Even Powell had to admit, "This is not the result the Fed wants, but it is indeed a possibility." He also emphasized that the Fed's goal is to achieve a "soft landing" and strive to curb inflation without causing an economic recession.

Bill Dudley, former president of the Federal Reserve Bank of New York , recently published an article in Bloomberg saying that the "benign scenario" predicted by the Federal Reserve will not occur. As financial conditions tighten, fiscal policies are restricted, and household savings dry up, consumer confidence will be severely damaged, unemployment will rise, and a "hard landing" for the economy may be inevitable. The U.S. economy will "inevitably" enter a recession within the next 12 to 18 months.

"The U.S. government's monetary policy is now in a difficult position." Chen Fengying said that one view is that raising interest rates should be used to curb inflation and avoid stagflation; another view is that radical interest rate increases will burst economic bubbles and make the economy Rising unemployment and declining consumption lead to economic recession, which is a typical manifestation of economic stagflation.

"The current round of inflation in the United States is not entirely a problem on the demand side, but also on the supply side. The Federal Reserve suppresses the demand side through tight monetary policy, and has limited effectiveness in controlling inflation." Chen Fengying said.

"The Fed's early loose monetary policy , the supply chain disorder caused by factors such as the epidemic and geopolitical conflicts are all the main causes of this round of inflation in the United States." Yang Panpan pointed out that from the perspective of the supply chain, the Fed's monetary policy can The role it plays is relatively limited. It can only respond to inflation through forward guidance and adjusting market expectations. At the same time, tightening monetary policy means suppressing aggregate economic demand. In this process, it is crucial to grasp and balance the two goals of inflation control and economic development.

Risks are spilling over

html On June 15, the day the Federal Reserve announced an interest rate hike, the Brazilian Central Bank also announced that it would raise the benchmark interest rate from 12.75% to 13.25%. This is the 11th consecutive time that the Brazilian Central Bank has raised interest rates since March 2021. Since June, many Latin American countries, including Mexico , Argentina , Peru , and Chile , have also raised interest rates significantly to cope with the continued growth of imported inflation pressure.

Patricio Giusto, director of the Argentina-China Research Center, pointed out that the main purpose of the Fed's interest rate hike is to curb high inflation in the United States, but it will cause very serious negative spillover effects on the global economy, especially the emerging economies of Latin America. Overall prices continue to rise, loan costs increase, currencies continue to depreciate, people's living costs increase, and unemployment rises.

is not limited to Latin America. In April and May this year, the Bank of Korea raised interest rates by 25 basis points for two consecutive months for the first time in 14 years and 9 months. The European Central Bank recently announced that it will create a new tool while raising interest rates to protect the vulnerability of the euro zone. Economy.

"The global economy is undergoing tremendous changes." The British Broadcasting Corporation recently published an article stating that most developed economies central banks and some emerging market central banks have recently tightened monetary policies simultaneously, which will have consequences for the business sector and consumers around the world. Influence. The British " guardian " said that the Federal Reserve's move will increase the pressure on global central banks to keep pace with it. India's "The Print" criticized that "radical interest rate hikes may disrupt the market and undermine the economic recovery after the epidemic."

Yang Panpan believes that the Federal Reserve's large-scale interest rate hikes will lead to a contraction of domestic demand in the United States, which means that the United States' demand for other economies will also tend to be weak. As liquidity tightens, interest rate spreads narrow, and risk aversion rises, emerging economies will see relatively common capital outflows and readjustments of asset allocation. Coupled with high global inflation and rising commodity prices, the development fundamentals of emerging economies will face impacts. In addition, the current direction of the Federal Reserve's monetary policy is still subject to great uncertainty and unpredictability. In addition, macroeconomic policy coordination mechanisms such as G20 have limited effect, and the global economy is facing risks.

“The impact of the Federal Reserve’s aggressive interest rate hikes is global.At present, Europe, Latin America and other regions have begun to suffer strong impacts from spillover risks. "Chen Fengying believes that the Fed's sharp tightening of monetary policy may intensify turmoil in global stock markets and foreign exchange markets, increase the risk of capital outflows and currency depreciation in other countries to a certain extent, and at the same time promote the appreciation of the U.S. dollar and the return of cross-border capital to the United States, which is equivalent to a global "Sheeping wool"

Source: People's Daily Overseas Edition