Original: Zhanhao source official account: Zhanhao wechat id:zhanhao668
The United States has taken very rare economic measures!
On June 16, the website of Lianhe Zaobao reported that the Federal Reserve announced on June 15 local time that it would raise the target range of the federal funds rate by 75 basis points to between 1.5% and 1.75%. This is the first time the Federal Reserve has raised interest rates by 75 basis points since 1994.
75 basis points, like the level of the Federal Reserve raising interest rates three times a day. Moreover, in the current market situation, with such a drastic interest rate increase, it is likely that the global economy will not be able to withstand the pressure of a hard landing – of course, the U.S. economy also has a certain risk of a hard landing.
So, we can’t help asking, why did the Federal Reserve finally choose such a means of raising interest rates? What is the purpose?
In Zhanhao’s view, there are three fundamental reasons why the Federal Reserve has taken such measures:
1? Severe inflationary pressures
It is reported that the Federal Reserve issued a statement after the two-day regular monetary policy meeting that the overall economic activity of the United States has rebounded after a slight decline in the first quarter. In recent months, employment growth has been strong and the unemployment rate has remained low. Inflation remains high, reflecting supply and demand imbalances associated with the COVID-19, rising energy prices and broader price pressures. In addition, events such as the conflict between Russia and Ukraine have put additional upward pressure on inflation and put pressure on the global economy.
These words of the Federal Reserve are obviously inaccurate, but he must put them in a high sounding voice. First of all, severe inflation makes the Federal Reserve have to take extraordinary measures. Otherwise, sustained inflation will not only dilute the wealth of the United States, but also intensify internal contradictions in the United States, and eventually lead to social unrest. Of course, the Federal Reserve knows the stakes, so it tries to use a stronger contraction policy to suppress inflation, so it has three times the usual means of raising interest rates. The Federal Reserve tried to use the most direct monetary means to suppress inflation by rapidly changing the price of money.
2? The pressure resistance of the US economy is very fragile, and it needs to end the interest rate hike cycle as soon as possible
In the past, the interest rate hike cycle in the United States as a whole was very long, usually 25 basis points each time, about three to four times a year. Generally, it took twoorthree years to complete the interest rate hike cycle. In twoorthree years, the United States has made a great profit. Because the interest rate hike cycle is long and capital will continue to flow into the United States from all over the world, the United States actually makes a lot of money after a round of interest rate hikes.
In this process, due to the continued existence of the expectation of raising interest rates, global capital will continue to withdraw from other economies and continue to flow into the US market. In this process, the U.S. economy has completed a soft landing, and other economies are likely to have a hard landing. Once and for all, the U.S. asset prices are still at a high level, while the asset prices of other economies are already at a low level. Next, the United States can release liquidity to the world through the interest rate cut cycle and acquire cheap overseas assets. Once again, the United States made a lot of money, and the relevant countries were cut off leeks.
But now the situation is different. Inflation in the United States continues to be higher than 8% and the actual inflation has exceeded 10%. In this case, the United States must control inflation as soon as possible and end the interest rate hike cycle as soon as possible. Otherwise, it will not be the economies of other countries but the United States itself that can’t stand it first.
3? The United States needs faster repatriation of overseas capital and faster re-entry into the interest rate reduction cycle
On March 16 this year, the Federal Reserve announced an interest rate hike for the first time in this round of interest rate hike cycle, raising the target range of the federal benchmark interest rate by 25 points to between 0.25% and 0.5%, which is the first interest rate hike by the Federal Reserve since December 2018. The economic forecast report released at the meeting shows that the Federal Reserve may raise interest rates at the next six meetings this year.
However, the reality is that the economy of the United States in the first quarter grew negatively month on month. In the past, it was not possible to raise interest rates. However, due to the high inflation that has lasted for more than a year, the Federal Reserve had to enter the interest rate increase cycle as soon as possible under the pressure of inflation.
Therefore, we saw that the Federal Reserve raised interest rates again on May 4, and this time it raised interest rates by 50 basis points, increasing the federal aggressive interest rate range to 0.75% to 1%. This is the first time in 22 years that the Federal Reserve has raised interest rates by 0.5%. This time, it was even tougher. On June 15, it directly announced a 75 basis point increase in interest rates and directly adjusted the federal benchmark interest rate to 1.5% to 1.75%.
In the last interest rate hike cycle, the federal funds rate of the Federal Reserve was only adjusted to 2.25%-2.50%. According to this data, the Federal Reserve only needs to raise interest rates by another 75 basis points to reach the target level of the previous interest rate increase cycle.
Why did the Federal Reserve raise interest rates so quickly in such a short time?
According to Zhanhao (wechat official account: Zhanhao), in addition to the United States’ desire to curb inflation faster, there are two reasons: first, the United States wants faster capital return, which is needed by the American economy; Second, the Federal Reserve needs to enter a new round of interest rate reduction cycle as soon as possible, otherwise the US economy can not stand it, and the double collapse of stocks and bonds will make the US economy fall into a new debt crisis.
The purpose of the Federal Reserve is to create a strong expectation of interest rate increase through sharp interest rate increase, so as to make more capital return to the United States from the international market in the short term; At the same time, the Federal Reserve can only try its best to increase the interest rate and raise the price of the dollar currency, so as to enhance the competitiveness of the dollar in the international market.
In the past, the Federal Reserve maintained a low interest rate to ensure that people could hold us dollars, but now it has to significantly raise interest rates to maintain the competitiveness of the US dollar. This has shown that the competitiveness of the US dollar in the international market has decreased significantly, and it is also one of the fundamental reasons for US inflation this time – the US Federal Reserve released US $6trillion a year, exceeding the global takeover capacity.
You should also see that the exchange rate of RMB against the US dollar fell rapidly in late April, from 6.35 to 6.7, which actually stabilized the expectation of RMB. Originally, some capital had the impulse to return to the United States, but with the cost of about fiveorsix points, the impulse of capital was greatly weakened. For China, after stabilizing its capital, it will not raise interest rates, and then actively promote infrastructure construction against the Fed’s interest rate hike. This will directly level the interest rate gap between China and the United States, that is, China does not need to use the interest rate gap to maintain the disadvantage of the RMB against the US dollar. This shows that the competitiveness of the RMB in the world is greatly enhanced, and the Central Bank of China has a stronger ability to control the currency.
In fact, the faster and larger interest rate hike by the Federal Reserve also shows that the US economy is very weak at this stage. The Federal Reserve tries to complete the interest rate hike cycle by raising interest rates quickly, so as to end the interest rate hike cycle in a shorter time. According to the current situation, this round of interest rate hike by the Federal Reserve is expected to end from the end of this year to the beginning of next year. Its benchmark interest rate should exceed 3%, and may even reach 3.5%.
The essence of this round of interest rate hike by the Federal Reserve is an economic decisive battle. The Federal Reserve has no choice but to quickly raise interest rates to stabilize inflation expectations. After the Federal Reserve completes the interest rate hike cycle, it is most beneficial for the United States to enter the interest rate cut cycle faster. However, in the interest rate cut cycle, the Federal Reserve releases more liquidity and needs more cheap assets for its acquisition in the international market, that is to say, the United States needs more crises in the international market to cut the leeks of other countries’ economies. However, the problem is that if there are not so many crises in the global economy, that is, there are not so many cheap assets in the world for the United States to purchase, it will make the United States raise interest rates and feel lonely.
If, under the strong interest rate hike of the Federal Reserve, an economy such as China can not only bear the burden, but even the currency price is lower, then China can continue to release infrastructure and investment to neighboring countries while expanding its own infrastructure, which will greatly hit the United States.
As the international market does not have enough cheap assets for its acquisition, the Federal Reserve will have to continue to push up its asset prices as it enters the interest rate cutting cycle. If this continues, the asset prices in the U.S. capital market will become higher and higher, but the physical assets will not increase, and the capital market will collapse sooner or later. Conversely, if China has more and more physical assets, the gold content of China’s currency and its economy will further increase, and then the pressure on the United States will increase.
It is precisely for this reason that if the United States finally suffers another collapse in this economic decisive battle, the deep-seated problems of the American economy will still be unable to be solved. Then the United States is bound to create more large-scale global turmoil and even regional wars to achieve its own goals. The battlefield must be aimed at the Eurasian continent, because only the Eurasian continent has enough money to help the American economy bottom up.
Therefore, in the medium term, there will be more and more dangerous points for military conflicts in Eastern Europe, the Middle East and East Asia. In fact, the Russian Ukrainian war has begun for more than three months, and the scale of the war is likely to further expand, including Poland, Belarus and other countries may be involved, which is determined by the national interests of the United States and the current situation.
At the same time, the United States has been seeking to create wars around China. Therefore, the Korean Peninsula, the Taiwan Strait, the South China Sea and China and India are all the hot spots for the United States. However, the probability of conflict between the South China Sea and China and India is relatively low. The reason is that the Philippines in the South China Sea is not fooled and the modi government in India is not fooled. However, the situation in East Asia is somewhat dangerous now. South Korea and Japan have taken the bait, especially South Korea. Yin Xiyue’s disorderly behavior will ignite the peninsula conflict; The Tsai ing Wen authorities in Taiwan, China province of China have also taken the bait, so the probability of conflict between the two places is increasing.
Economic decisive battles are often accompanied by military decisive battles. Therefore, the risk of further expansion of conflicts in Eastern Europe, the risk of outbreak of conflicts in East Asia and the risk of outbreak of conflicts in the Middle East are increasing. All these tests the strength of the country and the wisdom of politicians!
China is still a good Tai Chi player, and the United States is still helpless for the time being! If the United States forces China into a hurry in East Asia, China will inevitably give the United States a heavy blow. For example, the Chinese defense minister has just stated that he will “fight to the end at all costs and at all costs” on the Taiwan issue; On the contrary, if the United States cannot force the situation into a larger-scale war, the United States will be lonely again in this round of economic war. For the United States, the consequences of trouble making and failure are also serious, because the accumulation of problems will make the United States collapse first!