Fed Chairman Powell said on the 17th that the Fed is acting quickly to curb inflation at a 40-year high. Powell said the Federal Open Market Committee (FOMC) broadly supported a 50 basis point hike at the next two meetings. He stressed that the Fed will not hesitate to continue to raise interest rates until inflation falls back.
Powell reiterated his determination to fight inflation
According to the Associated Press, on May 17, local time, Powell said, "We need to see inflation fall in a clear and convincing way, and we will continue to work hard." Powell said: "If the price rise fails to slow, then we will have to consider more aggressive action, and the Fed will consider raising interest rates faster." If inflation does fall, consider slowing down. ”
Powell also said the Fed would "not hesitate" to push the benchmark rate higher to the necessary level, even if it would lead to a slowdown in economic growth. While it's unclear what levels interest rates might reach, Fed officials have set it at around 2.5 percent to 3 percent, about three times the current level of interest rates. Powell hinted that Fed officials would continue to raise rates by 50 basis points at their June and July meetings.
In early May, the FOMC announced raising its target range for the federal funds rate to a range of 0.75% to 1.00%, the first 50 basis point hike by the Fed in 20 years. In addition, the Fed plans to start shrinking its huge balance sheet in June. U.S. CPI rose 8.3 percent year-over-year in April, down from 8.5 percent in March but higher than market expectations of 8.1 percent, according to the U.S. Bureau of Labor Statistics.
Charles Evans, president of the Federal Reserve Bank of Chicago, said on the 17th that the Fed needs to actively raise interest rates to regain control of inflation. Evans favors an early adjustment of the federal funds rate to a neutral range. According to the Wall Street Journal, Evans said that a front-line rate hike is necessary to accelerate the tightening of financial conditions, which can also fulfill the Fed's promise to suppress inflation, thus helping to control inflation expectations. St. Louis Federal Reserve Bank President James Bullard also said he supported the Fed raising rates by 50 basis points each in several future meetings.
Affected by Powell's statement, the US Treasury yield continued to climb during the New York trading session on the 17th. Policy-sensitive short-term yields led the gains, with 3-year yields rising 15 basis points to 2.9 percent, and 2- and 5-year yields also rising more than 14 basis points. Long-term yields rose slightly, with 10-year yields rising nearly 11 basis points to 2.99%.
High prices affect production and life
According to Reuters, data from the American Automobile Association (AAA) shows that the retail price of gasoline in all states in the United States has risen above $4/gallon for the first time in history, and the last batch of "lost" kansas, Oklahoma and Georgia oil prices rose significantly overnight.
According to AAA data, the average price of gasoline in the United States on the 17th was $4.523 / gallon, once again setting a new record. California has the highest gasoline prices, with a record $6.021/gallon, and five other states have prices above $5. In addition, the average U.S. diesel price was $5.573 a gallon on the 17th, also a record.
Marco Finley, a researcher at Rice University's Baker Institute for Public Policy, said earlier this month that high oil prices burden low-income households the hardest, spend a significant portion of their income on fuel, and that they are less likely to drive electric vehicles. A forecast released this month by the U.S. government shows that the average gasoline spending by U.S. households this year will increase by about $450 from last year.
The price of the US real estate market has also risen significantly, and industry insiders pointed out that due to the impact on the supply chain, the current gap in building materials is large, and many materials are basically sold out as soon as they appear, and the increase in construction costs has pushed up house prices. In Florida alone, compared with before the epidemic, local house prices have risen by more than 30%, and even doubled.
According to Bloomberg, due to factors such as the rising cost of living, Microsoft and other technology companies in the United States are facing the challenge of manpower shortage and need to rely on salary increases and other means to retain talents. Microsoft currently implements a mixed work system, where employees can work from home more than 50% of their work hours. With the exception of Microsoft, Amazon doubled the base salary cap for its employees to $350,000 a year in February, citing the reasons for the increase as "particularly competitive" in the labor market.
Economic growth forecasts have been revised downward
Powell recently admitted after being re-elected by Congress that the imbalance between supply and demand of the US labor force and high inflation coexist, while the Fed's policy means are limited, and whether it can achieve a "soft landing" of the economy depends on many uncontrollable factors.
Wells Fargo CEO Charlie Sharf said on the 17th that there is no doubt that the United States is heading for a recession. "As the Fed moves quickly to curb high inflation by aggressively raising the federal funds benchmark interest rate, it is likely to have some economic consequences."
Goldman Sachs recently lowered its economic growth forecast for the United States this year and next year, believing that the Fed's tightening of monetary policy will bring financial market shocks. Goldman Sachs economists led by Haduz are currently expecting the U.S. economy to grow 2.4 percent this year and 1.6 percent in 2023, down from the previous 2.6 percent and 2.2 percent. Lisa Charlit, chief investment officer at Morgan Stanley Wealth Management, also predicted in a note that the probability of a U.S. recession in the next 12 months is 27 percent, compared with just 5 percent in March.
In addition, the economic and financial order in other parts of the world has also been disrupted. At present, a large amount of money has begun to flow into the US financial market, and emerging economies have become the "hardest hit areas" affected by the high inflation in the United States. In response to the risks of inflation, exchange rate depreciation and capital flight, major emerging economies have raised interest rates several times in 2021. Brazil, Russia, Mexico and South Africa raised interest rates 7, 7, 5 and 1 respectively throughout the year, with cumulative rate hikes of 725, 425, 150 and 25 basis points respectively.
At the same time, global energy, food, industrial chains, etc. have once again been greatly impacted, which has once again hit the global economic and financial order, which is already plagued by high inflation. In April, the International Monetary Fund (IMF) slashed its forecast for global growth in 2022 to 3.6 percent, with its forecast for growth in the euro area down to 2.8 percent from 3.9 percent earlier. Experts pointed out that the high inflation in the UNITED States has led to increased turmoil in global financial markets and increased uncertainty about the global economic recovery.
Reporter Qin Tianhong comprehensive report
Source: Economic Reference