However, the forecast value of monetary policy target for the next three years given by economists of Federal Reserve 19 has made the market feel the pressure of subsequent interest rate hikes. As far as the federal funds rate at the end of 2022 is concerned, only one economist predicts that the year-end value will be lower than 4%, eight economists predict that the year-end value will reach 4. 125%, another nine economists predict that the interest rate will reach 4.375%, and only one economist thinks that the interest rate will reach 4.625%, that is, it will at least exceed 4% at the end of the year. The latest adjusted federal funds rate ranges from 3% to 3.25%, which means that the interest rate will be raised at least 1 1.2 and 1.4 at two meetings, one of which is 75 basis points and the other is 50 basis points. As for the federal funds rate in 2023, economists have some differences. There are 6 people who predict that the interest rate will be at least 4.325%, 4.675% and 4.785% at the end of the year, which indicates that the federal funds interest rate will not change much next year.
The spectre of inflation and economic recession hangs over the American financial market. Except for energy stocks, the prices of most assets have declined to varying degrees. As of September 23rd, this year (compared with the closing price at the end of 20021), the Standard & Poor's 500 Index has fallen by 22.5 1%, the Dow Jones Industrial Average has fallen by 18.57%, and the Nasdaq Index, which is dominated by technology stocks, has fallen by 30.53%. Usually when the stock market falls, funds will flow into the bond market, but now both markets are falling, and the bond market no longer has the usual hedging function, which is enough to show investors' panic.
How does the Fed view economic growth, unemployment rate and inflation?
Compared with the policies of the Federal Open Market Committee, the 19 economists of the Federal Reserve (including the 12 decision-making officials who are eligible to vote) have richer policy information and greater influence on the financial market. During June-September, the Fed got more information about economic indicators, and economists' views on economic growth, unemployment rate and inflation were more conservative than before. First, compared with June, Fed economists are no longer so optimistic about the economic trend in 2022. In view of the economic downturn of 1.6% in the first quarter and 0.6% in the second quarter (second estimate), economists predict that the annual growth rate will be 0. 1%-0.3%, which is obviously more in line with the actual situation, because GDP may shrink again in the third quarter. Even if the economic and financial situation is so severe, the word "economic recession" is not in the dictionary of Fed economists, which is really difficult to convince the financial market.
Secondly, although Fed policymakers often say that employment growth is still strong, 65,438+09 economists have raised their forecasts for the future unemployment rate. Earlier, Fed officials were very confident that the economy would achieve a soft landing. Now it seems that curbing inflation must pay the price of unemployment growth and economic recession, so the Fed no longer mentions a soft landing. In fact, in the past 60 years, the Fed has tried 1 1 economic soft landing, but it only succeeded once in 1994- 1995. It is important to maintain high-level and high-quality employment, but in the current situation, you can't have your cake and eat it, and the increase in unemployment is inevitable. Judging from the trend of the forecast value, Fed economists believe that the unemployment rate will rise to 4.6% at the highest, and still fantasize that the slowdown in economic growth will have limited impact on the job market.
Finally, Fed economists believe that inflation will drop miraculously. In July, the inflation rate measured by PCE (Personal Consumer Price), the favorite of Fed policymakers, was 6.3%, while economists predicted that the annual value would be 5.4% and that it would be 2.8% next year. How can inflation come down like a cliff? In August, the prices of energy products and used cars and trucks in the United States followed the downward trend in July, and the market was generally optimistic that inflation would continue to cool down. However, the prices of other goods and services are still high, and the consumer price index actually reached 8.3% in August. When calculating inflation, the US Department of Labor's consumption index of goods and services is 39.865% and 60. 135% respectively. Only the decline in energy prices and used car prices will not cause an overall decline in inflationary pressures. It can be predicted that the trend of PCE indicators announced next week is generally consistent with the trend of CPI in August.
Does the Volcker experience still apply?
Inflation in the United States has been going on for more than a year and is still at a high level. At the central bank meeting held in Jackson Hole in August, the current chairman of the Federal Reserve paid tribute to the former chairman of the Federal Reserve, Walker, saying that the primary task of the Federal Reserve is to control inflation. The implication is that the Fed should learn from Volcker's experience and thoroughly control domestic inflation. However, this time is different. Does Volcker's experience still work?
President Volcker has indeed made extraordinary achievements in curing the high inflation that has long plagued the American economy. Volcker served as chairman of the Federal Reserve from/kloc-0 to/kloc-0 on August 6, 979. When he first took office, the inflation rate measured by the consumer price index was as high as11.84% (the highest since June 1975), and the federal funds rate was 10.72%. On June 4th of that year, 165438+ Iranian revolution took place, and 57 American diplomats and citizens were detained by Tehran University students. The incident led to bad relations between the United States and Iran, and the price of crude oil soared in the international market, which increased the inflationary pressure in the United States. 1March 1980, inflation in the United States rose rapidly to 14.59%, the highest since 1948. Under the leadership of President Volcker, the (real) federal funds rate was pushed up from 65,438+00.72% when he took office to 65,438+09.85% at the end of March 1980. Even after the overall inflation pressure eased, such as July 198 1 to 10.77%, the federal funds rate remained at 2 1 .09% (July1). 198 1 year later, 1 1 month later, American inflation completely bid farewell to the double-digit era, while the federal funds rate did not drop to single digits until 1983+ 1.2 months later.
Although the current inflation situation seems to be similar to that when Volcker took office, the current political and economic environment is completely different. First, the then two American presidents respected and fully supported President Volcker. In the 1980 general election, President Reagan won in 44 states and had a good public opinion base. At that time, American society was not divided as it is now, and the territory of the Democratic Party and the * * * Party was not solidified as it is now. Second, at that time, international economic integration was in its infancy, and the world was divided into two camps, East and West, with little economic exchanges with each other. Third, the problem of inflation at that time was "printing machine phenomenon", and the central bank's excessive issuance of money was the fundamental reason for inflation; With the resolution of the Iranian crisis, the price of crude oil gradually fell, which partially eased the domestic inflationary pressure. Fourth, the economic structure of the United States has changed. When Volcker was in office, the service industry contributed 48.07% to the national economy, and in the second quarter of 2022, the service industry contributed 59.32% to the American economy. Finally, the economic status of the United States in the world has declined. 1983, the gross national product of the United States accounted for 3 1.37% of the world, and fell to 23.88% in the second quarter of 20021year.
At present, the causes of inflation in the United States are complicated, both domestic and foreign, and are not entirely caused by monetary policy mistakes. The credibility of the government and the central bank, the domestic political situation, the disorder of the global supply chain system under the epidemic, the shortage of chips, the change of industrial structure, the populism under the wave of international economic integration, the conflict between Russia and Ukraine, Sino-US relations, the market chain reaction under the rapid spread of information, the lag of American infrastructure and many other factors all play a significant role. Copying with Volcker's iron fist may not be effective.
American export inflation will also drag down its own economic growth.
The rapid shift of the Fed's monetary policy did not take into account the economic reality of its allies, let alone the economic reality of emerging market economies and the economic difficulties of underdeveloped countries. According to the latest statistics, many countries have experienced inflation. Take G20 countries (accounting for 86.2% of global GDP) as an example. According to the degree of inflation, these economies are divided into three grades: Turkey (80.2 1%), Argentina (78.5%), Russia (14.3%) and the Netherlands (18). Britain (9.9%), European Union (9. 1%), Brazil (8.73%), Mexico (8.7%), Italy (8.4%), USA (8.3%), Germany (7.9%), South Africa (7.6%) and Singapore (7.6%). Saudi Arabia (3%), Switzerland (3.5%), Japan (3%) and China (2.5%). Except for a few countries, most members of G20 are facing serious inflation problems. As early as July this year, the International Monetary Fund warned that the world economic recession was coming, and lowered its forecast of economic growth rate this year from 6. 1% last year to 3. 1%.
Last Thursday (Beijing time), after the Federal Reserve raised interest rates, some central banks began to follow in the footsteps of the US central bank. Last Thursday was also called "Super Thursday". On the same day, the Swiss National Bank announced that it would raise interest rates by 75 basis points, and the short-term interest rate rose to 0.5%, leaving the negative interest rate zone; The Bank of England announced that it would raise interest rates by 50 basis points, and the short-term interest rate would rise to 2.25%, and began to sell some bond assets. The Norwegian central bank announced a 50 basis point interest rate hike and adjusted the short-term interest rate to 2.25%; Indonesia's central bank raised interest rates by 50 basis points, and the policy interest rate was raised to 4.25%; The Philippine central bank raised interest rates by 50 basis points, and the overnight lending rate rose to 4.25%. Canada's economy is tired, and the economic growth of the euro zone countries is in a lot of difficulties. It will soon be known whether these central banks will raise interest rates. Among these 20 countries, only China and Japan are exceptions. China moderately relaxed its monetary policy, while Japan resolutely maintained a negative interest rate policy.
Many G20 members are in a dilemma due to the continuous sharp interest rate hikes by the Federal Reserve. However, domestic inflation and sharp currency depreciation forced the central bank to keep pace with the Fed's interest rate hike. As far as the EU is concerned, as long as the conflict between Russia and Ukraine does not end as soon as possible, the United States will take the lead in imposing economic sanctions on Russia, which will ultimately hit the EU itself. In Asia, Japan's economic development is particularly lacking in continuity; South Korea's chip exports have fallen sharply; India's economy has shrunk for two consecutive quarters. With the development of global economic integration to the present level, some countries are talking about "decoupling". It is self-deception, selfishness and lack of sense of responsibility, which is harmful to global inflation control.
It has become common sense that the economy is about to decline.
American financial markets don't buy the Fed's account because the economic reality is cruel. Wall Street bankers are not optimistic about the economic prospects of the United States, and the theory that the economy is about to decline has gradually become market knowledge. This week, Goldman Sachs lowered the closing price of the Standard & Poor's 500 Index at the end of 2022 by 16% to 3,600 points. As DavidKostin of Goldman Sachs Group said, the interest rate has changed too sharply, and the market prospect is particularly bleak. Last Friday, Bank of America said that GDP would shrink by 65,438+0% in the fourth quarter and the unemployment rate would rise to 5.6% in February. David kelly, chief strategy director of JPMorgan Chase, believes that the US economy seems to have entered the quagmire of economic recession, and the economy cannot bear the heavy interest rate of 4.25%-4.5%. Most other analysts hold a similar view that economic recession is only a matter of time. On September 20th, the GDP released by the Federal Reserve showed that the economic growth in the third quarter of this year was 0.3%.
Controlling inflation will definitely lead to economic recession. In the 1980s, during the 15 quarter after Volcker took office, the economy declined to varying degrees in six quarters, especially in the fourth quarter of 198 1 and the first quarter of 1982, which shrank by 4.3% and 6. 1% respectively. In the stock market, the S&P 500 index rose by 25.77% at 198 1, fell by 9.73% at 1982, and rebounded by 14.7%. The present environment is completely different from the past. The causes of inflation are more complicated, and the service industry accounts for a relatively heavy proportion. Whether the interest rate hike can produce the expected effect is indeed doubtful. In any case, the Fed's interest rate hike will definitely accelerate the economic recession.
Looking ahead, the financial market will pay close attention to the third quarter performance report of listed companies that appeared in early June 10, and will pay special attention to the prospects of heavyweights for the company. In addition, the US consumer index to be released on 10 and 13 and the third quarter GDP growth (estimated value) announced on the 27th will have a great impact on the market, and the PCE index released on the 30th of this month also needs attention. Considering that the stock index has released a large downward momentum, we believe that the Standard & Poor's 500 index will fall by 3,350 points before the end of the year and should fluctuate between 3,400 and 3,900 points. The price trend of other financial assets is highly correlated with the standard stock index, so investors will naturally infer its price fluctuation range.