Macro team
Macro outlook for 2022 (I): Sino US monetary policy adjustment triggered by Virginia election ( The Pacific Securities Co.Ltd(601099) securities macro Yuan Ye)
Summary of views
On November 2, the Republican Party recaptured Virginia after 12 years. After the seemingly insignificant political event, the focus of the Democratic Party’s policy suddenly shifted. Three days after the defeat in Virginia, the house of Representatives led by Pelosi abandoned the bundled welfare expenditure bill and passed the infrastructure bill alone; Ten days later, the U.S. Court of international trade (CIT) officially announced the restoration of 201 tariff exemption and the reduction of 201 tariff rate; on the 23rd, Biden released U.S. crude oil reserves to suppress oil prices while shouting that OPEC production had failed; on the 30th, Powell, who had just been nominated for re-election, admitted at the national hearing that inflation was not temporary and hinted to further accelerate taper and even raise interest rates.
This series of continuous actions, we may understand that inflation is too high, which are due operations. But why exactly at this point in time? What is the definition of high inflation? Wasn’t inflation high before? The world’s major central banks are still in the mainstream of “temporary” inflation. Why did Powell wait?
If we want to connect these events, it is more reasonable to take the political motivation of the mid-term election as the logical main line. If the logic is correct, it is reasonable to expect that the Fed’s policy goal in 2022 will be to accelerate monetary tightening in advance to control inflation – the policy will be silent and stable – and enter the interest rate increase cycle. Accordingly, the Central Bank of China, dominated by China, will also take measures to reduce reserve requirements and even interest rates at the beginning and end of the year to meet the requirements of hedging the Fed’s monetary tightening and steady growth.
