Author: Tan Yaling, Independent Economist of China Foreign Exchange Investment Research Institute.
The new trends revealed by the recent U.S. economic data show that the new structure of the U.S. economy is the focus of the market's attention, which is the new method and new thinking for judging and predicting the future monetary policy of the Federal Reserve. That's why the number of new non-farm payrolls in the U.S. hit a one-year high in January, and wages grew faster than expected, a key indicator that the Fed's rate cut expectations were inappropriate or too impatient. Nonfarm payrolls rose 35 percent in January30,000, and the unemployment rate remained at 37%, but wages accelerated month-on-month and posted the largest increase since March 2022. The strong U.S. economy creates a lot of jobs in line with the logic and cycle, with hourly wages of 4The 5% increase indicates that stimulating inflation will be higher again, which is a new cycle and new structure of the U.S. economy. In particular, the employment growth in the United States in January mainly came from health care, professional and business services, and retail, which is the structural focus of the Fed's future inflation escalation - services** is the core new parameter, and the U.S. inflation structure is upgraded, which is a kind of planning and logical layout accompanying the new economy in the United States. Therefore, the rationality and long-term nature of the Fed's dispel market interest rate cut expectations is the focus of the market.
On the one hand, we need to focus on the important role that the U.S. labor market plays in driving consumer spending and sustaining economic growth. First of all, economic growth is the first enterprise support is a circular principle and logical novelty, in which the growth of corporate profits and the expansion of employment and income growth are indispensable. In 2023, the strong U.S. economy and the bull market of U.S. stocks will run in parallel, and the soft landing of the U.S. economy is clear, but the non-landing of the U.S. economy is a new parameter of new economic logic and structure and even theoretical innovation. Secondly, the good consumption is closely linked to income and investment returns, and the logical planning and cyclical logic of the United States are beyond the ordinary. The U.S. Big 7 will achieve rapid revenue growth in 2024, with a return of 8% in the first month of the year, compared to 3% for the S&P 493**, and the yield and return of U.S. stocks are a U.S. characteristic of the U.S. labor market and income. Therefore, the University of Michigan Consumer Index rose sharply month-on-month in January, the largest increase since 2005, and the temporary cooling of inflation in the United States and higher than the Fed's inflation definition is a new trend and new logic. The Federal Reserve closely monitors the impact of labor supply and demand on wage growth, with average hourly earnings rising 06%, a year-on-year increase of 45%, and this figure is affected by the reduction of working hours, the survey data coincides with severe cold weather disrupting economic activity in many parts of the United States, more than 500,000 people have been shut down due to severe weather, the most in the past three years, but the growth in employment, income and hourly wages in the United States is unique and extraordinary. The rise in U.S. wages will continue, and the Fed's interest rate cut this year may be too hasty or even pure speculation is the focus and core.
On the other hand, we need to pay attention to the Fed's long-term choice and focus on the economic evaluation and monetary policy orientation, which is the logic of interest rates. At present, the market expects the Fed to cut interest rates as the main parameter is that interest rates are too high, which is a risk balance for the economy and enterprises, but the market seriously ignores the new economic format of the United States and the Fed's long-term purpose. This is that the new economic structure of the United States is not based on interest rates, but mainly on investment, especially not on deposits, but on yields, including the above-mentioned wage income, which is more than the current bull market return on investment in the market, and the interest rate scale of high yield on Treasury yields. Therefore, it is worth considering that the creativity and elevation of the US dollar interest rate on the structure of the United States are different from the traditional era, and not with the rhythm and logic of the general or most countries in the world, which is the drawbacks and risks of the Fed's interest rate cut expectations. Although the benchmark interest rate of the US dollar has reached a 22-year high, it is also unprecedented for the US economy to record an unprecedented growth rate and scale in a century-old history, and to increase the boom cycle, which indicates that a higher level of US interest rates is the characteristics and personality of the United States to connect with the new economic foundation and cycle of the United States. The dislocation and wrongness of the traditional logic of the high-level cycle of the U.S. economy and the low-level market are the main points of the current debate and disparity in the Fed's interest rates, and there are faults and blind spots between the solidification of the expected thinking model and the innovation of the reality structure, and the actual planning of the Fed far exceeds the base point and distance of the market's judgment. As Fed Chair Jerome Powell said, "We won't be bullied because we have the final say." This is the policy confidence and decision parameters that the market deserves great attention to, and even the current IMF supports the Fed's and even the world's interest rate hike expectations and logic. IMF Managing Director Georgieva warned of more risks for the Fed and other major central banks to ease monetary policy too soon, rather than too late, stressing that the Fed should not hesitate to cut interest rates when the data suggests that the time is ripe. Central banks need to be data-driven, not guided by the market's optimistic expectations, and there is a risk of easing too soon at this time in the cycle. In particular, she noted that the timing of the Fed's easing could be a "matter of months" and that the IMF believes the risk of easing policy too soon is higher, not too late. Taking action too early in the future could reverse gains in the fight against inflation, or it could undermine public expectations of future price pressures, dragging down consumer and investor confidence. In addition, Yellen expressed support for the Federal Reserve, and Summers also appreciated the Fed's monetary policy, the U.S. monetary policy support and pandering to fiscal policy are in an important period of convergence and cooperation, and the rise in interest rates has a dual effect on investment confidence and U.S. bond yields.
It is expected that the depreciation of the US dollar is an important response to the Fed's interest rate hike, and it is also the biggest problem and resistance for the US dollar. The Fed's interest rate hike will face a new stage, and the intensity and timing of interest rate hikes are not regular or rhythmic, but no matter how high the US interest rate is, the US inflation environment will be accompanied by the momentum and design of the US inflation environment. The Federal Reserve and the U.S. national plan do not do unprepared things, and long-term thinking is the unique position of the United States and the choice of the global pattern.