Core view:
As of February 22, the implied policy interest rate of December 2022 implied by the federal funds rate futures has reached 1.56%, indicating that the market expects the Federal Reserve to raise interest rates five to six times in 2022. However, we believe that the economic recovery of the United States will weaken in 2022, and the repeated epidemic, supply chain and labor supply-demand mismatch will continue to disturb the repair rhythm of potential economic output.
Therefore, against the background that the momentum of US economic growth is still facing great uncertainty, we expect that the Federal Reserve will raise interest rates ahead of time, the pace of interest rate hike in the second half of the year will slow down, and the market's expectation of the Federal Reserve's aggressive interest rate hike throughout the year may fail.
The structure of consumption expenditure is divided, the growth rate of commodity consumption is down, and the service consumption recovers slowly; Looking ahead, consumption has a limited role in boosting GDP
First, the growth rate of commodity consumption has exceeded the pre epidemic level in the fourth quarter of 2021, but the trend is downward. Looking ahead, the pulling effect of commodity consumption on the economy is difficult to continue. First, the problem of supply chain tightening is difficult to alleviate in a short time, leading to the continuous rise of commodity prices and curbing commodity consumption demand. Second, in 2021, the scale of commodity consumption has reached an all-time high, and a large number of commodity demand has been met or even overdrawn in advance. It is difficult to see new increments in the short term.
Second, there is still a gap in the growth rate of service consumption compared with that before the epidemic. It is expected that with the slowdown of the epidemic, the subsequent repair trend will continue, but the repair space of service consumption is limited. On the one hand, in the context of the normalization of the epidemic, the impact of the new round of epidemic on service consumption is less than that in the early stage of the epidemic, and the space for service consumption to rebound is limited. On the other hand, the employment gap in the service industry is still large, and the insufficient labor supply may drag down the recovery speed of service consumption.
Third, the "excess savings" formed by the increase of government transfer payments and preventive deposits during the epidemic may boost future consumer spending, but the potential support is weak.
In terms of private investment, replenishment will continue, but constrained by supply chain and consumption, the momentum to further boost the economy is weak. There is still strong support for residential investment, but the upward space for equipment investment is limited.
The supply chain tightening problem will probably continue in 2022, suppressing commodity consumption, which is not conducive to the repair of the U.S. economy.
In manufacturing, the delivery time of suppliers is still affected by the shortage of labor and raw materials, and its repair takes 8-12 months. In terms of logistics and transportation, both water and land transportation are under great pressure due to port congestion and labor shortage. The transportation obstruction is expected to continue until the second half of the year. It will take a long time for the supply of automotive chips to rise and continue to be disturbed by the global epidemic. It is expected that the shortage of chips will continue to limit the supply of automobiles in 2022, thereby suppressing demand.
The Fed's interest rate hike is ahead of schedule. The pace of interest rate hike in the second half of the year slows down, and the expectation of 5-6 interest rate hikes in the whole year may fail
The main constraint of the Fed's current monetary policy still comes from the output gap in the United States. Based on the above judgment, we believe that under the background of weakening demand and continuous supply chain tightening, the momentum of U.S. economic growth still faces great uncertainty.
From the perspective of economic recovery, if the interest rate hike is started as scheduled in March, the interest rate hike is a countercyclical interest rate hike, and the rhythm and timing of interest rate hike may have an impact on the economy. From the perspective of inflation, we judge that inflation will peak in the first quarter and begin to fall in the second quarter. Therefore, the Fed lacks the motivation to raise interest rates aggressively throughout the year.
Under the benchmark scenario, we believe that based on the trade-off between inflation and economic growth targets, the Federal Reserve will put interest rate hikes ahead, curb demand and control inflation. After inflation is controlled to a certain extent, it will slow down the pace of interest rate hikes in the second half of the year to ensure policy support for economic recovery.
Risk warning: the change of global inflation is higher than expected; Changes in the epidemic situation exceeded expectations, resulting in a rapid economic downturn; The escalation of the conflict between Russia and Ukraine led to a higher than expected economic trend.
