Why is it that the sharp interest rate rise in the Volcker era is not a manifestation of monetary independence? 1) Volcker was able to raise interest rates sharply to fight high inflation because it catered to political demands. In the 1970s and 1980s, the negative correlation between the support rate of four US presidents and inflation is extremely obvious. Under the situation of high inflation, President Ford failed to be re elected, and President Carter's support rate also fell below 30% in 1979. In order to reverse the decline, President Carter appointed Paul Volcker as chairman of the Federal Reserve. Unfortunately, when Volcker took office, it was close to the U.S. election, and his hawkish approach led to the U.S. economic recession in 1980, so he failed to help Carter reverse the defeat. For Reagan, although Volcker was nominated by his predecessor, he still met his political commitment to curb high inflation. 2) Is curbing high inflation Volcker's only policy goal? The Fed also takes into account the economy and employment. After Volcker took office, from April to July 1980, the Federal Reserve interrupted interest rate hikes and took short-term interest rate cuts. During this period, the year-on-year growth of real GDP in the United States turned negative and the unemployment rate accelerated. During the US economic recession in 1982, the Federal Reserve also cut interest rates. In other words, even in the era of high inflation, the Fed will take into account economic growth and employment while suppressing high inflation. Will the long-term stagflation of the 1970s reappear? US inflation inflection point may have appeared. 1) The long-term stagflation in the United States in the 1970s is the result of strong demand, the transfer out of manufacturing industry and the resonance of supply shock, which is difficult to reproduce at present. 2) The current round of inflation in the United States may have peaked in March.
The switching of the monetary policy anchor of the Federal Reserve in the Powell era. 1) Before September 2021, the policy anchor of the Federal Reserve is finance. Before September last year, the Fed always said that high inflation was temporary and unsustainable because the policy anchor at that time was finance. On March 11, 2021, Biden government implemented the fiscal transfer payment policy after the third round of epidemic. In the following months, the United States maintained a high level of fiscal deficit, and the Federal Reserve was unable to raise interest rates. Under fiscal constraints, the Fed cannot recognize the persistence of high inflation.
2) the shift of the Fed's policy anchor in September 2021: finance → high inflation. In the middle and late Q3 of 2021, the pressure of US fiscal bond issuance eased. At the same time, with the rise of inflation, the support rate of President Biden plummeted. This made the Fed's monetary policy anchor shift from helping the Treasury reduce the cost of debt expenditure to curbing inflation. 3) Since inflation is about to peak, why raise interest rates by 50bp in May? This just shows that the Federal Reserve does not have much room to raise interest rates, and if inflation does not peak, it cannot raise interest rates by 50bp at a single interest rate meeting. After the US CPI and other inflation indicators are released from April to May and prove the fact that inflation has cooled down, the Federal Reserve can not only affirm itself, but also ease the tight monetary pressure again. 4) Reiterate that the Fed's interest rate hike cycle probably stops within the year. Once the economy turns bad and there is a risk of recession or US stocks fall sharply, inflation will no longer be the main contradiction of the Fed's monetary policy. Looking back, on the one hand, the US economy slows down in the second half of the year and the risk of economic recession next year is high; On the other hand, at present, the risk premium of US stocks has turned negative, and the adjustment pressure is increasing. Furthermore, there is a high probability that the Fed will end raising interest rates within the year.
The Fed accelerated tightening, the devaluation of the RMB exchange rate and the market bottom of a shares. On the same day that the RMB exchange rate suddenly accelerated depreciation, US stocks fell sharply. The seemingly unrelated two types of assets reflect the same macro logic: the outbreak in China and the accelerated tightening of the Federal Reserve. If the RMB exchange rate depreciates further in the next 1-2 months, and the US stocks accelerate the downward exploration and induce liquidity impact after the FOMC Federal Reserve officially shrinks the table in May, it means that the Federal Reserve is expected to end the interest rate hike ahead of schedule and loosen the margin of monetary policy. Once so, the bottom of the A-share market will also approach.
Risk warning: the global epidemic situation exceeded expectations; The Fed's monetary policy exceeded expectations; China's steady growth policy is stronger than expected.
