U.S. economy under tightening expectations: Struggling and wandering

Shoppers at a supermarket in California, USA, April 12, 2022. /CFP

Shoppers at a supermarket in California, USA, April 12, 2022. /CFP

Shoppers at a supermarket in California, USA, April 12, 2022. /CFP

Editor’s note: Guo Lihua is a professor of the School of Economics, Central University for Nationalities. The article reflects the views of the author and not the views of CGTN.

Since 1945, the US has experienced 12 recessions. At the moment, the expectations of a recession caused by the increase in interest rates are based and make a deep impact on the structure of asset prices in the world.

Although the Fed has been on a hike in interest rates since March 2022, the US CPI reached a four-decade high of 9.1 percent in June, 2022 and fell back to 7.7 percent in October. but the price is still high.

The reason for this cycle is that the price of money is more in “buy-buy” behavior. Under the influence of the Russian-Ukrainian war on international products and other energy prices, the price of basic products such as cars and other international pressures have increased the price of imported products; the rapid expansion of the service sector late in the pandemic has widened the gap in the labor market, creating “a gradual increase in the gap between wages and product prices,” as well as increasing the establishment of the price is price.

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Now, with many rounds of monetary tightening, the dominant part of the price is gradually changing from the supply side to the demand side, and has gradually slowly emerge the meaning of the value of the desire.

From early March until now, in order to combat inflation, the Federal Reserve has unleashed the fastest rate hikes since 1980. As of November, The Fed has raised rates by a cumulative 375 basis points (bp) since March and has raised the federal funds rate to 3.75 to 4 percent.

The impact of the rate hike is clear, and it is not a good time for the public. The Philadelphia Fed manufacturing employment index fell to 7.1 percent in November from 28.1 percent previously, indicating that the labor market is cooling rapidly. In September, the amount of personal savings in the US decreased by 59.29 percent year-on-year and has grown positively for 18 consecutive months.

However, as interest rates rise and mortgage rates rise, there is increasing pressure on the public to pay for variable mortgages. As evidenced by the level of income and expenditure, consumption can be more important than the decline in the first quarter of 2023.

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Investment signs are also not good, in the third quarter of 2022, the rate of US construction and the growth of residential investment have fallen. to -11.36 percent and -12.74 percent. Although the US GDP has risen in the third quarter from negative to positive territory due to exports, the decline in personal consumption, retail and other industries at the highest environmental interest, reduced investment, and economic decline is inevitable.

Fed Chairman Jerome Powell /VCG

Fed Chairman Jerome Powell /VCG

Fed Chairman Jerome Powell /VCG

In terms of the external environment, the global economy is facing many challenges, with the ongoing COVID-19 pandemic. The regional situation is changing, the financial situation is deteriorating, and countries are facing difficulties. On October 11, the IMF released its World Economic Outlook report, which predicts that global economic growth will slow to 2.7 percent in 2023, down 0.2 percent from the dollar in July. Against the background of the global recession, not only the US.

It is too early to confirm that the US is about to enter a deep recession. On November 16, data from the US Department of Commerce showed that retail sales rose 1.27 percent in October from a year earlier, the highest since February of this year.

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On August 16, the US Congress passed the Inflation Reduction Act, which combines funding for energy conservation and climate finance, as well as funding for the Affordable Care Act, which can restore businesses through government spending and pave the way for economic recovery.

For some time to come, strengthening expectations may be correct, but specific methods are worth discussing. Successive interest rate hikes have had an impact, but CPI growth in October is still at a high of 7.7 percent, which is That’s a far cry from the Fed’s target of a 2 percent rate for inflation. The issue of commodity prices is still the main basis of the Fed’s current decisions.

At the Fed meeting at the end of the interest rate in early November, the Chairman of the Fed Jerome Powell called to stay in compliance with the policy until the inflation rate is reached. In the face of such uncertainty, the decision of the US to continue raising interest rates is questionable. Amid slowing rate hikes, tightening monetary and fiscal policy may be the next step.

(If you would like to contribute and have specific knowledge, please contact us at [email protected] Follow @thouse_opinions on Twitter to find the latest information in the CGTN Opinion Section.)


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