At its meeting on November 8, the Federal Reserve once again announced that it would keep the federal interest rate unchanged, which is the second pause in interest rate hikes since September.
The decision seems to have been welcomed by the market, with Treasury yields retreating to some extent, but the Fed's statement hinted that the possibility of future rate hikes remains.
At the same time, the outlook for the U.S. economy is becoming increasingly uncertainAccording to the latest data model**, U.S. GDP growth in the fourth quarter will increase from 49% dropped sharply to 12%。
Does such data mean that the U.S. economy is heading for a recession?Can the Fed's pause in rate hikes help the U.S. economy achieve a soft landing?This article will analyze the following aspects.
From the Fed's statement and Powell's speech, we can see that the Fed's pause in interest rate hikes is not out of concern about inflation, but out of consideration of uncertainty about economic growth.
Powell said that the U.S. economy is still resilient, even surprising, but it also faces some risks, such as the slowdown of the global economy, the increase in tensions, and the volatility of financial markets.
As a result, the Fed decided to slow down and watch more data in order to make more appropriate policy decisions.
The significance of this decision is that the Fed has no pressure to continue raising interest rates for the time being, and can respond more flexibly to changes in the economy. Moreover, since the ** of US Treasury yields has reached the equivalent of raising interest rates, the Fed's pause in interest rate hikes can also ease some market tensions, reduce some borrowing costs, and stimulate some investment and consumption.
Although the Fed paused its interest rate hikes this time, the Fed has not abandoned its plans to raise interest rates in the future. Powell made it clear that interest rate cuts are not considered in the short term, and the Fed will continue to monitor the economic trend, and if the economy is strong, subsequent rate hikes are still among the possible options.
It can be seen that this is only a pause in interest rate hikes, the Fed's policy tone is still tight, and if the economy continues to improve, subsequent interest rate hikes may still be implemented. Economic data and the Fed's future policy bias will need to be closely watched.
Therefore, this decision can be called a pause, that is, the Fed remains optimistic about the economy, but does not exclude concerns about it.
Judging from the data released so far, the U.S. economy showed strong growth in the third quarter, with GDP growth reaching an annual rate of 4.9%, the highest level in nearly four years.
U.S. GDP growth in the third quarter was mainly driven by higher consumer spending, expanding spending, and a pickup in business investment. However, some of the growth was also influenced by seasonal factors, such as agricultural exports** and inventory accumulation.
In addition, economic growth has not led to a significant increase in inflation, with the core PCE** index only 16%, below the Fed's 2% target. Overall, the recovery of the U.S. economy in the third quarter is mainly driven by short-term factors, and there is uncertainty about the continued recovery.
However, the outlook for the U.S. economy in the fourth quarter is not encouraging, and according to the Atlanta Fed's latest model**, the U.S. GDP growth rate in the fourth quarter will fall sharply, from 49% to 12%。This is far from market expectations, which widely expect US GDP growth to be 2About 5%.
Behind this is the many hidden dangers faced by the U.S. economy, such as the escalation of the war, which has led to a decline in exports and investment, as well as a decline in consumer confidenceThe widening of the U.S. fiscal deficit has led to an increase in debt, as well as the Fed's balance sheet reduction plan, which has led to an increase in U.S. debt, rising yields, and instability in financial markets.
All these factors could have a negative impact on the growth of the U.S. economy and even trigger a recession.
Judging from the current situation, although the US economy faces some risks, there are no obvious signs of recession, but there may be a certain degree of slowdown. The U.S. economy still has some supporting factors, such as the stability of the job market, wage growth, tax reform stimulus, and oil.
As a result, there is a risk of a soft landing for the US economy, that is, economic growth will decline but remain positive, and inflation will remain low. Such a situation is beneficial for the U.S. economy, which can avoid overheating the economy and can also avoid the economy from overcooling.
In order to achieve a soft landing, the Fed's policy should remain flexible and prudent, and adjust the pace of interest rates and balance sheet reduction in a timely manner according to the actual situation of the economy.
If the economy is strong, the Fed can raise interest rates appropriately to prevent inflation from rising and also ease the supply-demand imbalance in U.S. Treasuries.
If the economy is weak, the Fed can pause interest rate hikes or even consider cutting them to stimulate economic growth, or it can slow the pace of balance sheet reduction to stabilize financial markets.
In short, the Fed should make the most suitable policy choices according to the trend of the economy to promote the stable and healthy development of the US economy.