The so-called contraction of the Fed's balance sheet simply refers to the behavior of the central bank to reduce the size of the balance sheet, that is, to reduce the bonds and MBS purchased at that time on the asset side and recover the US dollar on the liability side. Its operation mode is that the Fed directly withdraws the market base currency by selling its bonds directly or stopping the reinvestment of bonds due, which is essentially equivalent to raising interest rates in disguise. It is a more severe monetary tightening policy and has a greater impact on liquidity. By shrinking the table, the Fed can sell domestic assets, recover the US dollars put into the market in the past, and realize the direct recovery of the base currency, thus realizing the normalization of monetary policy. Compared with raising interest rates, "shrinking the table" is more severe, which also reflects the firm position of the Federal Reserve to promote the return of monetary policy to normalization.

The contraction of the US watch may lead to the short-term RRR cut by the Bank of China, but the current money supply will only bring more inefficient investment; Coupled with the current domestic environmental pressure and pessimistic expectations for the future economy, the private consumption capacity will be affected by the double impact of income reduction and pessimistic expectations, and there will be a further cliff-like decline. The upstream price increase is unsustainable, and the industrial transformation and upgrading led by China and the reshaping of global value chain may be greatly affected.

The purpose of the Fed's interest rate hike is to control inflation, accelerate economic development, and keep the long-term growth of the total amount of money and credit consistent with the long-term potential growth of the economy, thus effectively promoting full employment, stabilizing prices and moderating long-term interest rates.

The Fed's interest rate hike means that a large amount of global money will flow into the United States. Investors can invest in the American market in many ways, which will lead to the rise of the US dollar and the decline of some commodities, precious metals and foreign exchange markets denominated in US dollars, thus causing certain fluctuations in the RMB exchange rate.