Due to the high prices of oil, copper, aluminum and other raw materials, many countries, including the United States, have been affected by supply shocks, with high prices and declining employment.

On May 1 1 day, the data released by the US Department of Labor showed that the US CPI rose by 0.3% month-on-month and 8.3% year-on-year. In terms of sub-items, in April, the US energy items increased by 30.3%, transportation items increased by 19.9%, food items increased by 9.4%, housing items increased by 6.5%, and clothing items increased by 5.4%.

The supply shock and the negative impact of the COVID-19 epidemic on the economy are superimposed, and the American economy is facing the difficult dilemma of rising prices and declining employment. If we adopt a loose policy to stimulate demand, employment will increase, but prices will rise further; If austerity policies are adopted to curb demand, prices will fall, but employment and economic growth will further decline. We can only choose between controlling prices and ensuring employment and growth.

The United States chose to control prices, raise the federal benchmark interest rate and shrink the table to curb soaring prices. Raising interest rates is an indirect measure to reduce the money supply by affecting people's borrowing costs and making people save more; Shrinking the table is a measure to directly reduce the money supply, and it is more powerful.

Shrinking is shrinking the Fed's balance sheet. For example, it turns out that A saved 654.38 million yuan through Labor Day, which is net assets. If A borrows 6,543,800 yuan from the bank and buys a house, now A's assets are 6,543,800 yuan, liabilities are 6,543,800 yuan, and net assets are still 6,543,800 yuan, but the balance sheet has expanded, which is the expansion of the table. Similarly, if A sells his house and returns the money he received to the bank, then he is shrinking his watch.

This is one person, and for the Fed, the reason is the same. Treasury bonds and MBS (mortgage-backed bonds) held by the Federal Reserve are assets. When these assets are sold, the assets on the Fed's balance sheet will be reduced. At the same time, the sale of bonds will earn US dollars, which can offset the liabilities of the Federal Reserve and reduce the amount of US dollars circulating in the market.

It is estimated that within three years, the Fed will eventually reduce its debt assets from the current $8.5 trillion to about $5.9 trillion, a reduction of more than 30%. This reduction is very strong.

The direct impact of shrinking the table on the United States is that the dollar in circulation in the market is reduced, the interest rate and index of the dollar will rise, and the prices of gold, silver and commodities denominated in dollars will fall; At the same time, the sale of treasury bonds by the Federal Reserve will lead to a decline in the price of treasury bonds and an increase in the yield of US treasury bonds. Bonds are typical interest-bearing assets. Interest-bearing assets and interest-free assets are substitutes for each other. The increase in the income of interest-bearing assets will lead people to give up interest-free assets, and the price of interest-free assets will fall. Although both stocks and funds have dividends, most of the returns of stocks still come from the fluctuation of stock prices, so stocks are closer to interest-free assets, so the stock market will also fall because of shrinking tables. When the benchmark interest rate increases, the mortgage interest rate will increase, and people's demand for housing will decrease. Regardless of other factors, house prices will fall.

The impact of shrinking the table on other countries is that the currency depreciates against the US dollar, and foreign capital flows out of the capital markets of these countries, which leads to the shrinking of the stock market and the real estate market. The price of government bonds also falls due to the capital outflow, and the yield of government bonds rises.

Summary:

Dollar =

Other currencies, such as RMB, depreciate against the US dollar? ↓

Treasury bond yield =

Gold, silver and commodity prices ↓

Stocks, funds, house prices ↓

The above analysis is for reference only, the main purpose is to explain the changes in the market, and it is not recommended to invest accordingly.