On November 2, local time, in the early morning of the 3rd Beijing time, the Fed announced another 75 basis point interest rate hike, which is the Fed's sixth interest rate hike this year. The level of the US federal funds rate has risen to its highest level since January 2008.
Since March this year, the Fed has raised interest rates six times in response to rising inflation. After this 75 basis point rate hike, the cumulative rate hike reached 375 basis points, which also raised the US federal funds rate target range to 3.75%-4%, the highest since January 2008. Experts say that the Fed has continued to tighten monetary policy in a short period of time in order to cope with the current high inflation in the United States.
Previously released data showed that in September, the US consumer price index (CPI) increased by 0.4% month-on-month and 8.2% year-on-year, higher than market expectations; The core consumer price index rose 6.6% year-on-year, the highest year-on-year growth rate in 40 years.
Zhao Qingming, vice president of China Foreign Exchange Investment Research Institute: The high inflation of the US economy has been going on for nearly a year, how can such high inflation be suppressed? The Fed believes that it must adopt a more aggressive approach, which is to raise interest rates, and it is to raise interest rates substantially.
Simply put, inflation means that there is more money in the market, and the Fed raises interest rates in the hope of increasing savings, reducing loans, and then reducing the money supply in the market and reducing inflation to a certain extent. However, the current high inflation in the United States is not only a simple reason for the current excessive money supply, in fact, this round of high inflation in the United States is caused by the superposition of multiple political and economic factors at home and abroad since the epidemic.
Xie Yaxuan, Deputy General Manager of Strategic Research Department, China Merchants Securities Research and Development Center: At the beginning of the outbreak of the new crown epidemic in early 2020, the US government adopted ultra-loose monetary and fiscal policies in response to the impact of the epidemic and financial market turmoil, which significantly raised inflation expectations and aggravated the tension of aggregate demand. Second, in recent years, the United States has adopted a series of anti-globalization policies represented by trade wars, which have reduced the efficiency of global supply to a certain extent and raised the level of prices. Third, the outbreak of the Russia-Ukraine conflict at the beginning of this year caused a serious supply shock, which also intensified inflationary pressures in the United States.
Dong Ximiao, researcher at the Institute of Financial Research, Fudan University: The high inflation rate in the United States is related to the serious disruption of the global industrial chain and supply chain after the outbreak of the epidemic, and to the rapid rise in international energy prices after the intensification of geopolitical conflicts. None of this can be solved by the Fed by raising interest rates, and the marginal utility of rate hikes is declining. Conversely, raising interest rates would increase the likelihood of a prolonged recession in the U.S. economy, exacerbating global cross-border capital flows and financial market volatility.
In addition, experts said that the Fed's decision shows that there is greater uncertainty about the future of US monetary policy. Compared with economic growth, the Fed pays more attention to curbing inflation and the price level, and it is difficult for the Fed to slow down the pace of interest rate hikes in the short term.
The Fed's current policy has had a multifaceted impact on the United States
Experts said that for the Fed, the fight against inflation is a priority, but changes in interest rates need to be transmitted to inflation through a series of steps, and the impact of interest rate hikes has a lagging effect. However, in the process of raising interest rates, the Fed is also facing other difficulties.
Data from the US Department of Commerce showed that US retail sales in September had zero month-on-month growth, and the year-on-year growth rate hit a half-year low. Meanwhile, the contract rate on 30-year fixed-rate mortgages continues to be above 7%. The US consumer market is being hit by high inflation.
Xie Yaxuan, Deputy General Manager of the Strategic Research Department of China Merchants Securities Research and Development Center: From the perspective of the real economy, the continuous interest rate hike in the United States has had a significant impact on residential investment, which has shown obvious signs of slowing down. In addition, personal consumption has also been significantly negatively affected, showing signs of slowing. The Fed's interest rate hike has also had a huge impact on the US financial market, with the yield on 10-year US Treasury bonds once rushing to 4.34%, and the Nasdaq index has fallen by more than 30% since the beginning of the year. The fall in asset prices will further negatively affect the real economy through the wealth effect.
In this context, the risk of a "hard landing" of the US economy is also further increased. Fears that the U.S. economy will fall into recession have not abated. JPMorgan CEO Dimon warned that very serious headwinds could push the U.S. and global economies into recession in the next 6 to 9 months.
Zhao Qingming, Vice President of China Foreign Exchange Investment Research Institute: Some well-known experts and scholars have made predictions that the United States will fall into recession next year. There are also some indicators that have clearly turned downward, which means that the possibility of a downturn or recession in the US economy is bound to increase. Now the stage of raising interest rates is not over, and it is impossible to cut interest rates immediately after raising interest rates, so it may be an unavoidable fact that the US economy is likely to fall into recession next year.
The Fed's interest rate hike has caused economic turmoil in many countries around the world
Since the US dollar still occupies a large proportion in international trade settlement and international financial markets, the Fed's monetary policy has a "spillover" effect that transcends national borders around the world, and the Fed's interest rate hike this year has caused financial and economic turmoil in many countries around the world.
Experts said that due to the international monetary status of the dollar, the Fed's interest rate hike has brought about the appreciation of the dollar, which in turn has triggered the return of international capital to the United States, which has repeatedly occurred in previous dollar appreciation cycles. When international capital flows to the United States, the value of local currency assets falls for other countries, leading to further exacerbation of capital outflows. This is a direct manifestation of the "spillover" of the Fed's interest rate hike policy.
Michael Hudson, professor of economics at the University of Missouri-Kansas City: If other countries do not raise their interest rates, then their investors will have to buy Treasury bonds for arbitrage, and the main victims will be the pound and the yen, especially the yen with very low interest rates.
In fact, the Fed's repeated interest rate hikes this year have caused the yen to fall to its lowest rate against the dollar since 1990, and the Bank of Japan has had to intervene with foreign exchange reserves in a row. The pound also depreciated to its lowest level since 1985, falling more than 20% during the year. According to British economist John Kay, when the debt problem is superimposed on the perennial economic problems, coupled with the energy crisis caused by the Russia-Ukraine conflict, developed economies cannot withstand the weight of multiple crises, and they are particularly "fragile" in this round of dollar interest rate hikes.
John Kay, British economist: Our financial services industry is too big, out of touch with the commercial economy, and largely out of control. One of the core problems of the Western economy is to solve this problem.
In addition, in some countries and regions with fragile economic structures and financial markets, such as emerging markets, the appreciation of the US dollar to attract international capital to return to the United States will trigger currency pressure in emerging economies and tight US dollar liquidity, while the rise in US dollar financing costs will also lead to an increase in the risk of default on US dollar-denominated debt.
Michael Hudson, professor of economics at the University of Missouri-Kansas City: Third world countries are facing a domestic debt crunch and cannot repay their US debt without depreciation, and Argentina and Turkey are the most troubled countries. International raw materials are denominated in dollars, so when the dollar appreciates, it means that countries that use their own currencies have to pay more of their national currency to buy copper, oil, food, or other raw materials.
There are many calls for "de-dollarization" in many countries around the world
The Fed's interest rate hike has triggered economic turmoil in many countries around the world, and experts say that in the medium and long term, the dollar's international status is being challenged like never before.
Zhao Qingming, Vice President of China Foreign Exchange Investment Research Institute: Especially in the past few years, the US deglobalization or anti-globalization measures have made politicians, economists and entrepreneurs in various countries have further strengthened their determination to "de-dollarization" and are also exploring more plans.
According to the global foreign exchange reserve currency composition released by the International Monetary Fund (IMF), the share of the US dollar in international reserve assets in the second quarter of 2022 was 59.53%, which continued the downward trend of nearly 20 years, and the US dollar accounted for 72.7% in 2001. In addition, the use of the dollar as a financial sanctions tool by the United States has raised international concerns about the safety of the dollar, which has prompted other central banks to seek ways to replace the dollar, and calls for "de-dollarization" are rising.
Michael Hudson, professor of economics at the University of Missouri-Kansas City: When countries can't pay their foreign debt, people say, I want our country to put our own economy first. Now that many countries will no longer hold and reserve dollars, but will establish currency swaps and trade in each other's currencies, "de-dollarization" is taking place, and the rules of the future will not be the neoliberal financial rules of the United States. We hope that in the future, countries can independently establish a mutually beneficial and win-win system, rather than handing over their economic surpluses to the United States.
Mainland monetary policy "me-oriented"
So what is the impact of the Fed's interest rate hikes, especially the continuous interest rate hikes since the beginning of this year, on the mainland's monetary policy? Take a look at the experts' analysis.
Unlike the Fed's continuous interest rate hikes this year, since the outbreak of the epidemic, China's central bank has maintained its policy focus, and is one of the few major economies that implement normal monetary policy, and the interest rate level is in the middle of the world and lower among major developing countries.
Dong Ximiao, researcher at the Institute of Financial Research, Fudan University: Since the outbreak of the epidemic, although the mainland's macro policies have increased counter-cyclical and cross-cyclical adjustments, on the whole, monetary policy has remained stable, and easing measures such as "flood irrigation" have not been implemented, and there is more room for policy adjustment and optimization.
Zhao Qingming, vice president of China Foreign Exchange Investment Research Institute: The growth rate of our money supply is still relatively consistent with our prices and our economic growth. We are insisting on the stability of the entire macro leverage, that is, the purchasing power of the currency to maintain its stability.
Experts said that in the next step, the mainland's monetary policy should continue to adhere to the principle of "focusing on me", increase implementation from many aspects, make good use of aggregate tools, highlight the role of structural tools, enhance the stability of total credit growth, and continue to optimize the credit structure, more effectively boost confidence and expectations, more effectively promote economic growth, and continue to help the comprehensive recovery of the economy and society.
Xie Yaxuan, Deputy General Manager of the Strategic Research Department of China Merchants Securities Research and Development Center: China's monetary policy should still be based on the premise of paying attention to China's own economic fundamentals and inflation trends, and to maintain economic growth, we need to maintain a steady and loose monetary policy stance. Since the beginning of this year, the RMB exchange rate has fluctuated in both directions, defusing the rare external shock of the strengthening of the US dollar, and creating conditions for our monetary policy to achieve "self-centered". (CCTV reporter Liu Ying, Dong Bin, Sun Yan, Sha Qian, Zhang Jun, Zheng Tianhao, Zhang Qiwei, Zhou Jinglin, Zhang Yaqi, Cheng Jindian)
Source: CCTV news client