Text | Chen Shaoyu Fei Da
The economic recovery in the post-epidemic period lasted for two years, and the overall output gap of OECD countries has not been bridged. The negative impact of supply chain and labor force is still the main explanation. The inflationary pressure of 2020-202 1 comes from negative supply shocks and is superimposed on positive demand shocks. 2022 is a year of low demand policy. The inflation rate in the United States should have entered the downward channel at the end of the first quarter or early second quarter, but the conflict between Russia and Ukraine may delay the arrival of the inflection point. In addition, the domestic epidemic rebound is a new disturbance to the global supply chain, which increases the imported inflationary pressure of major trading countries (or regions).
At its meeting in March, the Federal Open Market Committee (FOMC) decided to raise interest rates by 25 basis points and announced that it would reduce its balance sheet at its upcoming meeting (most likely in May). According to the interest rate map, the Fed may raise interest rates seven times a year (25 basis points each time), which means that the remaining six meetings will raise interest rates. Of course, in his subsequent public speech, Federal Reserve Chairman Powell claimed that under appropriate circumstances, the rate hike would exceed 25 basis points (such as 50 basis points). Comparing the exit cycle of unconventional monetary policy from 20 13 to 20 19, this time it can be described as "sudden braking". Although the reduction signal issued in August 20021and the implementation of 10/1did not cause panic in the financial market as it did in 20 13, this year's "fast-forward" interest rate increase and table contraction may not only cause panic, but also end the recovery process in the United States ahead of schedule. Considering the inflation pressure in Europe and the new epidemic prevention pressure in China, the global economy in 2022 is not optimistic.
In terms of export commodity structure, fuels (crude oil and natural gas, etc. ) accounts for about 50% of Russian exports, food, agricultural raw materials, minerals and metals account for about 30%, and finished products such as machinery and transportation equipment account for about 20%. Ukraine's exports are mainly food, accounting for 45% of the total export, and the proportion of finished products such as machinery and transportation equipment is slightly lower than 40%, and the rest are mainly minerals and precious metals. 55% of Russia's fuel is exported to Europe and 40% to Asia. 53% of Ukrainian food is exported to Asia and Oceania, and 33% to Europe. It can be seen that the direct impact of the Russian-Ukrainian conflict on the global economy is mainly through commodity channels, and its negative impact on the supply side may interrupt the global value chain being repaired.
In the initial stage, the impact of the COVID-19 epidemic on the supply side and the demand side is symmetrical, showing a simultaneous decline in volume and price. Later, the supply influence dominated, because exogenous policy stimulus changed the relationship between supply and demand. Inflation is a response to the gap between supply and demand. This is obviously different from the global financial crisis in 2007 -2009, which was dominated by demand shocks. Moreover, due to the higher financial complexity and interdependence of developed economies, emerging and developing economies are relatively weak from the impact of the financial crisis (especially those with low degree of opening up), and they also play a more important role in the subsequent recovery (especially China). This time, due to the differences in biomedical technology and policy space, emerging markets and developing economies (excluding China) are more vulnerable to the epidemic and the recovery process is slower. Most economies have not yet returned to the potential growth path before the outbreak.
The spread of the epidemic, the dislocation between the stimulus policy and the macro-economy are important clues to understand the post-epidemic world economy. Due to the different division of labor among different economies in the global value chain, the dislocation of this cycle makes the recovery of the global value chain take much longer and more difficult than expected, which makes the complex industrial chain or finished products continue to face the shortage of key intermediates or raw materials, such as chips in the automobile industry chain, which in turn leads to the rise in the prices of related products. Based on the micro-survey data, American manufacturers reported that the chip gap tended to decline after reaching its peak in February 20021year. As Ukraine is an important exporter of neon (one of the raw materials of chips), the conflict between Russia and Ukraine will also disrupt the chip and automobile industry chain. As of the beginning of this year, the price increase of automobiles and other transportation products in the United States remained above 20%, contributing 3.9 percentage points and 50% to the CPI increase (7.9%) in February.
Inflation pressure in the United States is far ahead in the world, followed by Britain and the euro zone (Figure 1). Due to the base period, the core CPI of the United States jumped to 3% in April, 202 1. After the temporary revision in the third quarter, it continued to climb from June 20438+00, reaching 6.4% in February 2022, a 40-year high. Britain has been rising since it broke through 3% in August, 20021,and has remained above 4% since June1. The euro zone broke through 2% in June last year at 5438+ 10, and may break through 3% in March this year. Due to weak domestic demand and weak policy stimulus, China's inflation pressure is mainly reflected in the upstream (PPI inflation), and CPI pressure is not great (but the upstream and downstream transmission pressure may be stronger this year than last year). Japan's inflation reading began to rise in April last year, and turned from negative to positive after September, reaching 0.6% in February 2022. The pressure is not great. In the medium and long term, a super-aging society often corresponds to deflationary pressure.
1In February, 978, Miller took over as the chairman of the Federal Reserve and armed the FOMC as a supporter of Carter. They firmly believe that as long as the unemployment rate is above 5.5%, monetary policy will not cause inflation. 1at the end of 978, the inflation rate exceeded 9%, and Miller believed that powerful trade unions and the private sector should be responsible for the rise in wages and profits. Schultz, then the chairman of China Eastern Airlines, wrote a memo to Carter in early 1978, saying: "We have not seen any signs of rising inflation, nor do we think it is likely to accelerate within two years." 1979, the oil crisis struck again, the economy fell into stagflation, and FOMC was still unwilling to shrink the currency. At the beginning of 1980, the inflation rate stood at a high level of 15%.
The Great Stagflation didn't happen overnight. In fact, this is a relay between different factors, including supply-side factors such as oil shock, demand-side factors such as the Federal Reserve's monetary policy and wage growth, and the sharp depreciation of the US dollar after the Bretton Woods system.
1963165438+1October, Kennedy was assassinated and Johnson took over as president. Financing the Vietnam War and the "Great Society" program has become the top priority of the White House.
Political demands coincide with the mainstream trend of thought in economics. Keynesianism had occupied the mainstream economic position in the United States at that time, and Keynesians held positions in the President's Council of Economic Advisers (CEA), the Ministry of Finance and the Federal Reserve. They believe that loose monetary policy will not lead to inflation when the labor market has not yet achieved full employment, and tightening monetary policy will only aggravate unemployment and will not reduce inflation. They demanded that monetary policy should be coordinated with fiscal policy to keep the economic growth rate above 4% and the unemployment rate below 4.5%.
At the beginning of 1966, the year-on-year growth rate of CPI in the United States exceeded 2% and then accelerated. While waiting for the government's tax increase proposal, Willian McChesney Martini, then chairman of the Federal Reserve, repeatedly postponed raising interest rates. At the end of 1968, the unemployment rate dropped to 3.4%, and Martin began to tighten the currency. The economy weakened, and the GDP growth rate peaked at 1968 in the second quarter, and then went down all the way, with negative growth in the fourth quarter 1970. The unemployment rate rose from 3.5% in 1969 to 6. 1% at the end of 1970 (Figure 2). This seems to confirm the Keynesian view that the price of reducing inflation is to increase unemployment. By the beginning of 1970, inflation had exceeded 6%.
1970 When the Bretton Woods system was about to collapse, Burns, nominated by Nixon, succeeded Martin as chairman of the Federal Reserve. They have different styles. Martin is a conservative. Although Burns is not a Keynesian, he agrees with Keynes's views on fiscal policy and monetary policy. He believes that rising prices are not a monetary phenomenon, and the main task of monetary policy is to achieve full employment. We should rely on fiscal and income policies (such as direct price and wage control) to manage aggregate demand and thus stabilize prices. The mainstream view within FOMC also believes that as long as the output gap is negative or the unemployment rate is higher than 4.5%, loose monetary policy will not trigger (or aggravate) inflation. Under the assumption of price stickiness, the Fed has increased its tolerance for short-term price increases. After Burns took office, the Fed started the process of cutting interest rates and increasing the money supply. Burns hopes to use loose monetary policy to support employment in exchange for the government's control over wages and prices to stabilize prices.
1at the beginning of 973, inflation came back. The price control bill will expire in April. Burns suggested that Nixon expand the scope of price control and demand that all prices, profits and interest rates be frozen. Due to the economic recovery, price control not only failed to control the price, but also caused a shortage, further pushing up the price. Before the oil crisis broke out in June+10, 5438, the CPI growth rate in the United States had reached 7.4%. 1974 In April, Congress allowed the price control bill to expire, and the inflation rate at the end of the year exceeded 12%. Burns still believes that monetary policy should not be responsible for inflation, but blames the fiscal deficit for no reason. This is because, in the case of wage and profit control, the cost-driven hypothesis is untenable.
Nixon was forced to resign after Watergate. 1on August 9, 974, Ford took office as president. During Ford's administration, the overall monetary policy was tight. By the end of 1976, the growth rate of CPI dropped to a low of 4.3%. Jimmy Carter 1977 took over Ford in early 1977 and took office with his economic stimulus plan. Its economic think tanks are basically Keynesians, such as Larry Klein, and radical ideas are making a comeback. 1978's Humphrey-Hawkins Act reaffirms the Fed's monetary policy goal: "The board of directors and the Federal Open Market Committee of the Fed system should maintain the long-term growth of the total amount of money and credit, so as to effectively promote the realization of the goals of maximum employment, price stability and moderate long-term interest rate". In fact, employment comes first.
Burns's mind hasn't changed. He didn't realize the relationship between money quantity and prices, and still stubbornly tried to stabilize prices by influencing the fiscal and income policies of Carter government. After Carter took office, FOMC focused on stimulating economic growth. The meeting in July 1977 is a typical case of reluctance to raise interest rates for fear of affecting economic recovery. In September, the increase of M 1 exceeded 8% again.
1In February, 978, Miller took over as the chairman of the Federal Reserve and armed the FOMC as a supporter of Carter. They firmly believe that as long as the unemployment rate is above 5.5%, monetary policy will not cause inflation. 1at the end of 978, the inflation rate exceeded 9%, and Miller believed that powerful trade unions and the private sector should be responsible for the rise in wages and profits. Schultz, then the chairman of China Eastern Airlines, wrote a memo to Carter in early 1978, saying: "We have not seen any signs of rising inflation, nor do we think it is likely to accelerate within two years." 1979, the oil crisis struck again, the economy fell into stagflation, and FOMC was still unwilling to shrink the currency. At the beginning of 1980, the inflation rate stood at a high level of 15%.
It is a big mistake to blame the big inflation entirely on the two oil crises. This is a relay, which began in the mid-1960s, with loose monetary policy as the initiator and the oil crisis as the last stick. 1966 labor law amendment contributed to the promotion of wages, the collapse of the Bretton Woods system in 1970 and the supply shortage caused by Nixon's price control. Radical progressivism and Keynesianism armed the government and Congress from the political and economic levels respectively. Martin can't talk alone, Burns is ambiguous, and Miller can only look forward to it. Politicized monetary policy has lost its independence and initiative.
From the causes of inflation in the United States after the epidemic, the policy response of the Federal Reserve headed by Powell, the political demands of the Biden administration and the popular economic theory, we will always find a sense of deja vu. The price of WTI crude oil has doubled compared with that before the epidemic, and the conflict between Russia and Ukraine may still further push up the oil price; Powell declared that "supply-side structural inflation" was temporary before the third quarter of 2002/kloc-0, and monetary policy continued to walk behind the curve of the market. According to the instructions of the revised Taylor rule in the new monetary policy framework, the Fed should start to reduce its size in the second quarter of last year and raise interest rates in the fourth quarter of last year, which was half a year late. The model shows that the combination of inflation rate and unemployment rate corresponding to the current federal funds rate is about 1%.
Biden won the presidential election with the help of Democratic Progressive Party's strength, and his policy also has obvious progressive tendency-similar to the Roosevelt-Johnson era, alleviating inequality plays an important role in its policy objective function. In the White House economic sector, Cecilia Routh, Jared Bernstein, Chairman of the Council of Economic Advisers (CEA), and Nila Tanton, Director of the White House Budget Management Office (OMB) all hold progressive policy propositions. In terms of economic theory, the rise of modern monetary theory (MMT) in recent years has pushed Keynesianism to the extreme, and the Federal Reserve's purchase of national debt after the outbreak is considered to be the practice of MMT.
In 2020, the author wrote an article, Inflation Return or Deflation-Debt Spiral? It is pointed out that some trend factors, such as globalization, value chain trade and population, which have influenced global economic growth, interest rates, employment and prices since 1980s, have quietly reached a critical point in the post-crisis era. On the left is the victory of globalization and free market. Unemployment rate (and natural unemployment rate), inflation rate, interest rate and term premium continue to decline, wage growth stagnates, income differentiation intensifies, and labor share declines. The right wing is the revival of protectionism and populism. Nominal interest rates fell, the unemployment gap turned negative, and the inflation center rose significantly. Among them, the short-term pressure is greater than the long-term, and the flat Phillips curve may turn steep again ... After the COVID-19 epidemic, the manufacturing industry chain has been accelerated, and the ultra-large-scale expansionary fiscal and monetary policies adopted by western countries represented by the United States may be aimed at igniting the fire of inflation.
No one is preaching the magical effect of MMT at present. Powell also began to face up to the persistence of inflation and planned to reduce the inflation rate in the United States to 2% within three years (by 2024). Aside from the imported inflationary pressure of rising commodity prices, the pressure of rising domestic labor costs and house prices/rents in the United States should not be underestimated. The deduction of inflation and the Fed's countermeasures are crucial to whether the US and global economy will fall into a "second recession" after the epidemic.
Beware of the risk of a "second recession" in the global economy
The term structure of risk-free interest rate of national debt is the most important single variable to judge whether the American economy has entered a recession cycle. It reflects the position of the Federal Reserve's monetary policy-the upside down of long-term and short-term spreads indicates that monetary policy is tight, and vice versa (different from just observing the rise and fall of the federal funds interest rate). Based on the spread of 1 year and 10-year treasury bonds, in the past 60 years, except for one in the mid-1960s, there was a recession after each interest rate inversion. The main reason for this exception is that President Johnson has implemented a proactive fiscal policy since he took office. The spread inversion often appears near the intersection of unemployment rate and core CPI (or near the intersection, unemployment rate goes down and CPI goes up). This situation is also happening. Since last June 1 65438+1October, the annual interest rate of1has started to rise, which has obviously accelerated this year, and there is still room for 85 basis points from the upside-down spread. On the night before the spread is upside down, the unemployment rate will start to rise. Generally speaking, in the process of raising interest rates, short-term interest rates will rise faster. If the Fed withdraws from unconventional policies and interest rates rise too fast, the United States will face the risk of a second recession. In the latest GDP forecast, the Federal Reserve has lowered the GDP growth rate of the United States in 2022 from 4.0% predicted at the end of last year to 2.8%.
In view of the lessons of raising interest rates too early and implementing quantitative easing policy too late during the European debt crisis, the EU has been more active in dealing with the COVID-19 epidemic, and the coordination between fiscal policy and monetary policy has been better. Due to the low inflationary pressure in the early stage, the European Central Bank is also conservative in reducing asset purchases and raising interest rates. During the epidemic, the emergency purchase plan (PEPP) and asset purchase plan (APP) and the zero interest rate policy remained unchanged. Due to Europe's high dependence on Russian energy imports, the imported inflationary pressure brought by rising energy prices is also greater. The European Central Bank has to reassess the persistence of inflation and may enter the exit procedure ahead of schedule. Judging from the comprehensive leading indicators of the economy, the high point of economic growth in Europe appeared in the third and fourth quarters of last year, but the economic scale has not yet recovered to the potential growth path before the epidemic. If the ECB withdraws early, it is likely to end the already slow recovery. In addition, Europe is also facing a new wave of refugees.
China is the "stabilizer" of global prices during the epidemic. Regionally, the pressure of imported inflation (import price index) in the United States mainly comes from Canada, the European Union and Mexico, and the commodity price index of China (and Japan) exported to the United States has been running smoothly. This is not only due to China's effective epidemic prevention policy, but also related to the integrity of China's value chain and conservative domestic stimulus policies. China's policy focuses on protecting market players (tax reduction and fee reduction+credit support) and indirectly ensuring employment and people's livelihood. In economic structure, the production side is stronger than the demand side. Represented by the United States, the policies of western countries mainly focus on directly protecting people's livelihood (directly giving money to residents), and at the same time using monetary policy to prevent market players from liquidity crisis, which shows that the demand side is stronger than the supply side in the economic structure. China and foreign countries only complement each other. In China, external demand makes up for domestic demand, and overseas, China's supply makes up for its own deficiency-the status of the world factory has been highlighted. However, this structural policy has changed. China is being plagued by a new round of epidemic, and both production and demand are under pressure, while the overseas economy is being fully restarted, and the demand momentum is unabated. Can the power be connected? The situation is not optimistic. The triple pressure in China has not been solved, and the epidemic situation is worse, and the pressure of steady growth is even greater.
Say said that supply creates demand ("Say's Law"). On the contrary, insufficient supply will also eliminate demand. The global value chain trade used to continuously transport cheap manufactured goods to developed countries, but the COVID-19 epidemic disrupted the division of labor in the value chain, causing the prices of raw materials and durable goods to continue to rise and inflation to rise again. The conflict between Russia and Ukraine and the resulting sanctions and counter-sanctions have further increased the fragility of the value chain and may end the hard-won repair. In 2022, the supply side is still the main aspect of the contradiction. When the price inflection point of energy and other commodities appears is very important, and its influence on downstream production and terminal consumption will be gradually realized.
Therefore, it is necessary to guard against the "second recession" of the global economy in the post-epidemic era. Although it may not be as serious as the first time, it will not come soon. The key depends on three variables: the trend of the Russian-Ukrainian conflict, the spread of the China epidemic and the pace of monetary policy withdrawal of the United States and the European Central Bank.
(Yu Shao is the chief economist and assistant to the president of orient securities, and Chen Dafei is the general manager of orient securities Fortune Research Center and the supervisor of postdoctoral workstation; Editor: Su Qi)