Wang Jinbin, text
Relative to the current level of inflation and neutral interest rates in the U.S. economy, the Fed 525-5.The 50% policy rate is on the high side. The economic and financial fundamentals of the United States determine that the Fed will delay the time and reduce the rate of interest rate cuts in 2024. The Fed needs to have enough time window to observe the changes in inflation, and the Fed will only enter the interest rate cut cycle if it is confirmed that there is no risk of recurrence of inflation and that it is close to the target value.
1. Fundamentals determine that there is pressure on inflation in the United States to exceed 2%.
The U.S. economic and financial fundamentals determine that the U.S. economy still has pressure of inflation rate of more than 2%, which can be roughly observed from five aspects.
1. From the perspective of macro aggregate demand, the current U.S. economic growth rate exceeds the long-term potential economic growth rate expected by the Federal Reserve8%，There is a pull for aggregate demand to maintain an inflation rate of more than 2%.。According to BEA data, the annual rate of U.S. GDP in the fourth quarter of last year was 33%, the annual economic growth rate is 25%, nominal GDP growth rate of 63%。February 16, 2024 Federal Reserve Atlanta Branch ** Q1 2024 U.S. GDP quarterly annualized rate of 29%, the economic growth rate remains at a relatively high level.
2. From the perspective of the micro labor marketWages are sticky。According to the Wage Tracker data of the Federal Reserve's Atlanta branch, the median three-month moving average wage growth rate for three consecutive months from October to December last year was 52%。According to the U.S. Department of Labor, the labor force participation rate remained at 62 in January5%, the new jobs exceeded market expectations, and the unemployment rate was 37%, flat for three consecutive months, the characteristics of the labor seller's market are obvious, and hourly earnings increased by 4 year-on-year5%, with a month-on-month growth rate of 06%。From the second quarter to the fourth quarter of 2023, the labor productivity of the non-farm business sector in the United States showed a year-on-year increase3% and 2Positive growth of 7% (low base, 2-4 quarters 2022 are at 2negative growth of around 0%). Judging from the comparison of wage growth and labor productivity growth, there is still a pressure of more than 2% on prices (taking the fourth quarter of last year as an example, wages **5.).2%, labor productivity 27%, then the price should be **25%）。However, it cannot be ignored that the rise in labor productivity since the second quarter of 2024 has slowed down the pressure on inflation in the United States.
3. From the perspective of supply, BEA's data shows that private goods spending in the United States will actually increase by 2 in 20231%, but real imports of goods fell by 17%, real exports of goods increased by 26%, nearly 6The $2 trillion spent on private goods accounts for about 1 3 of private spending. The pressure on goods caused by the supply shock of goods production has basically disappeared. Device usage from 79 in January 20236% down to December 787 per cent, which is basically around full employment.
4. From the perspective of the financial market conditions indexFinancial market conditions in the United States remain accommodative。The Chicago National Index of Financial Conditions (NFCI) was -0 on February 9, 202451, where the risk indicator contributed -024, the credit indicator contributed -017. The leverage indicator contributed -010。Since mid-to-late March 2023, the NFCI has been relaxed.
5. From the perspective of the size of the U.S. bank reserves and reverse repo marketLiquidity is still relatively abundant. The Federal Reserve's balance sheet on February 15, 2024, showed that depository institutions had nearly 3$54 trillion, based on the total assets of the current US depository institutions, the amount of reserves is at least 0$5 trillion. According to the data on the size of the reverse repo at the New York branch, the size of the reverse repo fell from about $2 trillion at the end of June 2023 to about 0$5 trillion, the scale of reverse repo has declined rapidly. If we simply look at the normal reserve requirements of depository institutions and the scale of reverse repo is zeroThere is also $1 trillion in excess liquidity in the U.S. financial markets. At the same time, after the US Treasury rebuilt the TGA account, the US Treasury's TGA account on the Fed's liability side now has more than 0$83 trillion, this part of the liquidity will also increase market liquidity with fiscal spending. Of course, we also need to pay attention to the impact of global liquidity changes on the liquidity of US financial markets. According to recent data released by the U.S. Department of the Treasury (TIC), in the 12 months of the year 2023, 9 months of long-term and short-term** and banking capital inflows and 3 months of net outflows were net inflows, with a total net inflow of nearly $844.5 billion. As of the end of December 2023, global investors' holdings of U.S. Treasuries exceeded $8 trillion for the first time, reaching $8$056 trillion, ** behavior has increased international investors' holdings of U.S. bonds.
Second, the constraints on the transmission of monetary policy in the United States have increased the lag in the effect of monetary policy
In the context of supply shocks (including ** chain pressure, commodity shocks) basically disappeared, continued high interest rate suppression, US inflation is still around 3%, and the core inflation rate is at about 4%.The main reason is that the effectiveness of the US monetary policy has been constrained。The Fed's monetary policy did passThe investment-savings channel plays a role。Federal Reserve data shows that after August 2023, the credit growth rate of all commercial banks in the United States will be negative, and the growth rate will be -10% (peak decline so far), -0. YoY in January 20248%。Falling bank credit can reduce private investment (BEA data shows that total real private investment in the U.S. fell by 1.2 in 2023).2%, mainly due to inventory drags) and private credit consumption. The U.S. household savings rate increased from 33% rises to 4. in 20235%, but onlyIt has become more difficult for the investment-savings channel to bring about a sustained decline in inflation
From the point of view of cash flow channels,In the short term, the role of cash flow channels has largely failed。According to the 2019 Federal Reserve Consumer Finance Survey, about 40% of U.S. households have mortgages, and mortgages account for about 70% of U.S. household debt, 92% of households have chosen fixed mortgages, and only 8% have taken out adjustable-rate loans. In this round of aggressive Fed rate hikes, 92% of American households have not been affected by the rate hike on their original mortgages. The rate hike will only have an impact on households new to the mortgage market, with little impact on household cash flow on those who have already secured their mortgages.
From the point of view of the asset ** channel,In the short term, the function of its transmission channel is partially out of order。Since 2023, the United States has seen a significant **, with the S&P index breaking through 5,000 points recently. Due to the imbalance between supply and demand, real estate prices in the United States will increase by 5 in 20235%。There has been a significant floating loss in the face value of bond assets, and the floating loss on the book of U.S. Treasury bonds is still very large, according to the data of the Dallas branch, the floating loss on the book of U.S. tradable Treasury bonds in January 2024 is still slightly more than 16 trillion dollars.
From the point of view of the exchange rate transmission channel,The exchange rate channel played a role。Imports** fell due to the strengthening of the US dollar. According to the U.S. Department of Labor, the U.S. import** index has been negative year-on-year since February 2023, and -1 year-on-year in January 20243%。
From the perspective of the balance sheet of non-financial enterprises in the United States, the Federal Reserve survey data shows that 40-45% are financial assets (real estate, **, etc.), and the basic failure of the monetary policy asset ** channel means that the balance sheet of US companies has not deteriorated, coupled with the effect of inflationU.S. corporate profits are still at a high level, BEA data shows that U.S. corporate profits (adjusted for inventories and adjusted for capital consumption) reached an annual rate of 3. in the third quarter of 202328 trillion dollars,Businesses are profitable, underpinning the low unemployment rate and wages in the labor market**
From a fiscal point of view, the fiscal and monetary policies of the United States to control inflation are out of balance. The U.S. fiscal deficit in fiscal year 2023 is nearly 17 trillion dollars. According to the CBO, the total U.S. deficit remains at a whopping 16 trillion dollars. Expansionary fiscal policy in the United States partially negated the effects of contractionary monetary policy.
Looking at the overall price results, assets have maintained housing and housing services, and the tight labor market has maintained core services in sectors such as transportation, health care, education, communications, and entertainment, which has made the decline in core inflation in the United States slow in the past few months, as services spending accounts for 2 3 percent of U.S. private spending.
Third, the policy rate is high, and the Fed may not be in a hurry to cut interest rates
In December 2023, the PCE in the U.S. economy was 2.2 year-on-year6%, and core PCE was 29%。Considering the level of neutral interest rates in the U.S. economy, the current policy rate of more than 5% is on the high side. Since it is difficult to agree on the neutral rate, there are differences in its definition, and there is a view that the interest rate level that satisfies the inflation rate of about 2% is the neutral interest rate level. According to the calculations of the Federal Reserve New York Branch and the Bank of Canada, the current neutral interest rate in the United States may not exceed 2%, so the Fed's current policy interest rate level is roughly 46-4.9% level, currently 525%-5.The 50% interest rate is on the high side.
The Fed is in no hurry to cut interest ratesThe most fundamental reason is to resolutely avoid the risk of repeated inflation。Judging from the current economic and financial fundamentals of the United States, the risk of recession in the United States has decreased significantly, and the monetary policy has lagged behind monetary policy due to the short-term failure of some channels.
It is worth noting that the extent to which technological progress represented by chip-based AI has brought uncertainty to the extent of the impact on investment and labor productivity in the U.S. economy, and it is difficult to judge which one plays a leading role, as opposed to the increase in aggregate demand caused by investment and the increase in labor productivity on prices. However, the current technological progress and the expectation of a new round of industrial revolution have pushed up the asset bubble in the United States, so that the wealth effect continues to play a role, which is not conducive to the downward trend of inflation.
The Fed needs what it thinks is enough time window to observe how inflation changes, and will only enter a rate cut cycle if it confirms that there is no risk of recurrence and that inflation is close to its target.