Author: Tan Yaling, Independent Economist of China Foreign Exchange Investment Research Institute.
Recent U.S. economic data presents two-sided parameters, and the short-term fluctuations of the U.S. economy have not changed or reversed the rhythm and logic of the U.S. economic cycle.
On the one hand, the short-term volatility of U.S. economic data is locally poor, but the long-term fundamentals remain unchanged. One of the important seasonal and cyclical factors is the inevitability of the rest after the Christmas holiday in the West, which is equivalent to the Spring Festival effect in China, and the volatility of the US economic data in December and January is a temporary stage parameter, not a trend and direction reversal. The first is the U.S. consumer confidence index, which fell to 106 in February, according to the latest Conference Board data7, down from 110 after the downward revision in the previous monthThe September and February indices were weaker than all economists surveyed had estimated. The second is the U.S. durable goods orders data, which showed that core capital goods orders rose 01%, down 06% for equipment investment other than aircraft and military equipment and not adjusted for inflation, but a sharp decline in commercial aircraft orders led to all durable goods orders**61%, the largest decline since April 2020. The third is the U.S. housing starts parameter, which fell to its lowest level in five months, with housing starts falling at an annualized rate of 148% to 1.3 million units, the lowest level since August last year. These three data reflect the volatility of the U.S. economy, but they are the characteristics of the seasonal factors in the United States, and the fluctuations in economic data after Christmas are normal for a long-term economy, but they are not a sign of problems in the U.S. economy. The probability of a recession in the United States is basically ruled out, and the boom cycle of the United States determines the limitation and temporality of data fluctuations.
On the other hand, the Fed's interest rate cut expectations are weakening and disappearing, and on the contrary, the expectation of interest rate hikes comes from a healthy economy. Since March 2022, the Fed has raised interest rates 11 times, with a rate hike of 525 points, of which 75 points have been raised by 4 consecutive extreme operations, 3 strong operations of 50 points, and 4 times at the normal level of 25 points. In particular, the process of raising interest rates by the Federal Reserve has not suppressed the bad US economy, but the US economy is getting stronger and stronger. The U.S. economy grew by 2 in 20221%, with a total economic size of $25 trillion hitting a new high; The U.S. economy will grow by 2 in 20235%, and the total size of the economy will reach a new $26 trillion. At present, the U.S. economy will not only not stimulate the Fed to cut interest rates, but will increase the pace and speed of the Fed's interest rate hikes. Therefore, Wall Street analysts believe that the Fed will not cut interest rates at all this year, and that high interest rates on the dollar have not caused much economic damage, and I agree with this. High interest rates have not dragged down corporate earnings, with 78% of companies now performing better than expected, with an average margin of 7%, according to US research firm Fundtrat. The latest economic data supports this view, that high interest rates have not harmed, and that the US economy has grown strongly so far this year, with the PMI indicator back above 50%; The employment data is strong, the unemployment rate remains low and the employment growth is significant; Consumer spending is strong and consumer confidence is relatively strong; Inflation is still higher than expected, and there is still a distance near the 2% parameter and there is still a high possibility; These are completely the support of the Fed's interest rate hike, and there is no reference reason and data for any interest rate cut.
In the future, the U.S. inflation data is more likely to rebound, and the Fed's interest rate hike will be prepared. In particular, the just-released U.S. housing data**, which is a reference value that has an important impact on U.S. inflation and an important correlation with U.S. interest rates, not only indicates the view of normalizing U.S. economic volatility, but also shows the stimulus correlation parameters of U.S. mortgage rates to the Fed's interest rate hikes. The S&P Corelogic Case-Shiller National Home Price Index was 5 percent year-over-year in December53%, up from a 5% gain in November. Especially in the last three months of 2023, the US 30-year mortgage rate soared to a 20-year high of 779% then fell sharply to 661%, which is a stimulus to some housing demand and a driving factor for American housing. The long-term tension in the United States has contributed to the rise in housing prices, and the 20-city housing price index in December has been 6 year-on-year1%, an increase of 5 from the previous month4%。Among them, San Diego's home prices increased the most year-on-year, reaching 88%, followed by Los Angeles and Detroit with 8 each3%。The U.S. real estate market is rising, and the U.S. housing price growth in 2023 will exceed the average annual level of the past 35 years, which is an important component of the general inflation parameters and core inflation in the United States. At present, the international oil market has been opened, and the inflationary correlation between the red sea state on oil prices and commodity transportation stimulus will be the key driver of the correlation between U.S. inflation and the Federal Reserve's interest rate hike.
It is expected that the Fed may raise interest rates more and more, and the Fed meeting in March does not rule out the possibility of raising interest rates. Looking at the problem from the current perspective, there are doubts about the probability of the Fed cutting interest rates this year, and the U.S. economy, the U.S., U.S. politics and even U.S. problems may be conducive to the Fed's interest rate hike to preserve the dollar, rather than the Fed's interest rate cut routine or formatted assessment of the structure and logic of the new U.S. economy. The new pattern and new look of the U.S. economy is an important cycle of the Fed's interest rate hikes, and it is not as simple as the traditional economic interest rate cut.