Content summary:
1. Senator Brown’s openness towards Powell cannot change Federal ’s monetary policy ;
2. Five years ago Trump ’s criticism of the Fed also failed to change the US dollar policy;
3. The market’s attitude towards Federal interest rate hike tends to calm down;
4. Inflation and employment data are still the key to the Fed’s monetary policy;
5. The Fed’s hike Next week will further increase the downward pressure on the RMB exchange rate .
On October 25, after the RMB exchange rate exceeded 7.3, the State Administration of Foreign Exchange took strict regulatory measures on the foreign exchange market. On the 26th, the RMB exchange rate rebounded rapidly. In addition, the oversold rebound of , the main currencies such as euro and the pound since October, and the changes in the UK's political situation helped the pound to rebound more, the dollar index has fallen recently. Many people believe that this is due to the approaching US midterm elections and the Federal Reserve cannot resist political pressure and will slow down the efforts to raise interest rates. Some people even asserted that the central bank took action, the US dollar was vulnerable, and the RMB was about to return to the appreciation channel!
. Senator Brown's openness to Powell cannot change the Federal Reserve's monetary policy
In the legal status of the United States, although the Federal Reserve is a monetary institution that is absolutely independent of the US Congress and the White House and independently controls the US dollar monetary policy, historically, White House officials and members of Congress have made inducing, critical and interfering remarks on the Federal Reserve's monetary policy for various purposes, which is certainly uncommon, but it also happens from time to time.
For example, this Monday, a public letter sent by Senator Sherold Brown to the Federal Reserve exposed the pressure on the Federal Reserve by parliament to the U.S. public. The Ohio Democrat warned in the letter that the rate hikes the Fed used to fight inflation could lead to job losses.
Brown wrote in the letter: "Fighting inflation is your job, but at the same time you cannot ignore the responsibility to ensure that we are fully employed... The potential unemployment caused by excessive currency austerity will only worsen these problems for the working class."
The letter was sent by the Federal Reserve less than a week after its two-day policy meeting, which is expected to start on November 1 and end on November 2. It is expected that the Federal Reserve will raise interest rates for the fourth consecutive time by 0.75 percentage points at this interest rate meeting. This will bring the US dollar's benchmark fund interest rate to the range of 3.75% to 4%, the highest level since the beginning of 2008 and the fastest pace of policy tightening since the early 1980s.
Without recommending a specific action plan, Brown asked Powell to remember that the Fed has a two-pronged mission—low inflation and full employment—and asked “the decision you make at the next Fed meeting reflects your commitment to your dual mission.”
A Fed spokesman admitted that Powell received a letter from Brown and said that the normal policy is to respond directly to such communication. In the past, Powell was often dismissed when asked whether political pressure could affect decision-making.
. Trump’s criticism of the Fed five years ago also failed to change dollar policy
This is not the first time the U.S. Congress and the White House have questioned the political questioning of the independent exercise of monetary policy by Fed Chairman Jerome Powell (Jerome Powell ) Because the last public question came from the other side - the White House.
The last time the Federal Reserve raised interest rates was between 2016 and December 2018. Powell was severely criticized by former President Donald Trump . Lao Tse once called the Federal Reserve Chairman a "fool" and called him the biggest enemy of the United States.
Of course, Democrats, including then-presidential candidate , Joe Biden, took the opportunity to criticize Trump's remarks against the Fed, insisting that the Fed does not accept any political pressure when formulating monetary policy.
In fact, as the president of the United States and the owner of the White House, you can only accuse the Federal Reserve, criticize the Federal Reserve, and use this to shift some responsibilities for economic issues to the Federal Reserve. But it has failed to affect the Fed's established monetary policy and the procedures for formulating monetary policy. This will also further establish the transcendent independence of monetary policy institutions in front of the public and enhance the public's sense of trust in monetary institutions. This is also one of the important reasons why the US economy is shaking and shaking about de-dollarization of countries like Russia, and the US dollar is still popular in international payments, transactions, storage and safe-haven.
Objective comments that Senator Brown's attempt to influence the Fed's words on Monday are much more subtle and clever than Trump's public criticism, and of course it is also unlikely to change the direction of the Fed's monetary policy.
In addition to Brown's letter, Powell also faces criticism from others in Capitol Hill .
Super progressive Massachusetts Democrat and former presidential candidate Senator Elizabeth Warren said Powell also recently warned that rate hikes could have an impact on employment. In addition, Virginia Senator Joe Manchin DW also criticized Powell last year, believing that the Fed's response to early rise in inflation was caught off guard.
Bleakley Advisory Group Chief Investment Officer Peter Boockvar Commenting on this, "I don't think Powell will succumb to political pressure, but I want to know whether some of his colleagues have started, some doves have become hawkish... Employment is good now, but as months have passed, growth continues to slow down, and layoffs have begun to increase at a more significant rate. I have to believe that the pressure level of employment will become greater and greater."
. The market's attitude towards the Fed's interest rate hike has become flat and
. The US economic critics and analysts generally believe that the Federal Reserve's monetary policy is a procedural result of democratization. Whether it is the chairman or other voters, their power and influence over monetary policy are only equal. Politicians' opinions or criticisms about the Federal Reserve's monetary policy are the same as ordinary people's comments on the Federal Reserve and will not have any impact on the Federal Reserve. Fed members have no motivation to adjust monetary policy for politicians, which will shake market trust in the Fed.
Market participants are certainly happy to support the independence of the Federal Reserve. Mark Zandi, chief economist of Moody's analysis, publicly commented: "Chairman Powell has made it clear that the necessary condition for the Federal Reserve to achieve the full employment target of is low and stable inflation. Without low and stable inflation, full employment cannot be achieved... He will stick to his own opinions on this matter. I don't think (the remarks of the lawmakers) will have any substantial impact on the Federal Reserve's decision-making."
Analysis from another perspective, this may also be a reaction to some Federal Reserve officials changing the tone and slightly changing economic data. The remarks of lawmakers also represent these reactions. In fact, market expectations for monetary policy have changed.
The market will calm down the Fed's 0.75% interest rate hike next week. According to CME, they now believe that the probability of another 0.75% rate hike at the Federal Reserve meeting in December is only 29.1%, after they thought the likelihood was close to 80%.
This change in sentiment came after several Fed officials, including Fed Vice Chairman Lyle Brainard and San Francisco regional president Mary Daly, etc., made warning remarks about the overly radical interest rate hike policy. In a speech late last week, Daly said she was looking for a "rate cut" point that allows the Fed to slow down interest rate movements.
. Inflation and Employment data remains the key to the Federal Reserve's monetary policy
Because wage growth has been strong for years, but many companies say that as the economic situation weakens, they either freeze recruitment or lay off employees.The economic slowdown and stubbornly high inflation have made the background of the November midterm election difficult, and Democrats are expected to lose control of the House and even the Senate.
Considering the high risk, both markets and lawmakers will pay close attention to the post-conference press conference of Federal Reserve Powell next Wednesday, which will be held six days before the election.
Objectively speaking, as the chairman of the Federal Reserve, he knows that politicians are increasingly worried about losing their seats. But he also knows that neither he nor the Fed can do anything to help either side. Staying objective and neutral, and independently exercising the power to formulate monetary policies is the best choice no matter from which angle you evaluate it.
Therefore, we evaluate and judge the monetary policy of the Federal Reserve, such as whether the US dollar will raise interest rates by 75 points or 50 points next week, we only need to study the inflation and employment situation in the United States in September.
U.S. CPI in September rose 8.3% year-on-year, down 0.4 percentage points from the previous month's increase. Up 0.4% month-on-month. However, the Fed's core CPI, which is used as a policy reference, rose 6.6% year-on-year, up 0.6 percentage points from the previous month's increase and 0.6% month-on-month. html added 263,000 non-agricultural employment in September, although lower than the 315,000 last month, but higher than the previous market expectations of 255,000. unemployment rate was 3.5%, down 0.2 percentage points month-on-month.
data shows that core inflation continues to rise, and the unemployment rate has fallen steadily. Especially considering that the price of personal consumption expenditure in the United States in the third quarter increased by year-on-year, and the comparable price increased by 2.4%, consumption is still strong. The Fed will raise interest rates by 75 basis points next week, which is difficult to change. As for the amount of interest rate hikes in the US dollar in December, according to the current U.S. inflation and employment data, of course, it will be chosen between 50-75 basis points, but specifically, the interest rate hikes of 50 basis points, or 75 basis points, the choice is still in the data, the U.S. inflation and employment data in October.
5. The Federal Reserve's interest rate hike next week will further increase the downward pressure on the RMB exchange rate
Comprehensive analysis and judgment, the US dollar will still raise interest rates significantly by 75 basis points next week, and the US dollar policy interest rate will reach 3.75%-4%. The inversion of interest rate spread between China and the United States will undoubtedly expand again. Don’t be confused by the illusion that the inverted interest rate spread between China and the United States these days, because this scene also occurred when the RMB dollar exchange rate fell below the 7.2 mark at the end of September and the central bank interfered with the exchange rate .
On October 26, the Bank of China's extremely strong intervention measures on the exchange rate can only temporarily delay the downward speed of the RMB exchange rate against the US dollar, and in line with the previous oversold brought a short-term rebound. It is impossible to change the recent trend of the downward trend of the RMB exchange rate in the medium term, including within half a year.
On October 25, the RMB dollar exchange rate broke 7.3. After the highest point touched 7.30095, the central bank announced the sale of the protection exchange rate on the afternoon of the 26th. The RMB rebounded against the US dollar at the highest level on the 27th, an appreciation of 1.52% from the lowest point of the previous 25th day. But on the 28th, the market ended its rebound and continued to decline. By noon on the 28th, it fell to 7.2336, a decrease of 0.6% compared with the rebound high on the 27th, and the rebound results had lost 40%.
[Author: Xu Sanlang]
