Sheng Songcheng, professor of China Europe International Business School and former director of the Investigation and Statistics Department of the People's Bank of China

　　The author Sheng Songcheng is a professor at China Europe International Business School and former director of the Investigation and Statistics Department of the People's Bank of China.

　　In the early morning of January 27, the Federal Reserve announced its latest interest rate statement, announcing that it currently maintains the benchmark interest rate and Taper (balance sheet) speed unchanged, but will soon raise the federal funds rate, and the "hawkish" voice is rising.

　　An imminent Fed rate hike is likely to be a last resort, as U.S. prices have soared to a nearly 40-year high.

In December 2021, the U.S. CPI and core CPI increased by 7% and 5.5% year-on-year, respectively.

People tend to think that as long as prices are high, interest rates should be adjusted.

Judging from the current situation, in order to stabilize inflation expectations and maintain the Fed's own credit, the Fed has to put interest rate hikes on the agenda.

　　Prices are mainly affected by the effects of both supply and demand.

Most of the CPI rises in U.S. history have been caused by overheating demand, and in this case, raising interest rates can dampen demand and thus quell inflation.

　　However, the reasons for the high prices in the United States this time are different from those in history.

The demand side of the United States this time is normal.

First, the U.S. stopped the national subsidy in September 2021, but then the CPI has been getting higher and higher, which means that the continued increase in the CPI has nothing to do with the national subsidy; second, the U.S. unemployment rate fell to 3.9% in December, but labor participation The rate is about 0.8 percentage points lower than the normal year before the epidemic, which means that the number of non-agricultural employment is not high, and the income of American residents is unlikely to increase significantly; third, the rise in asset prices in the United States brings wealth effect, but the impact limited to the consumer side.

From all aspects of analysis, the demand side of the United States is normal and not overheated.

　　Since demand is not overheating, why are prices rising?

It's a simple truth - the Covid-19 pandemic has hit U.S. supply chains, creating shortages.

For example, you go shopping in a supermarket in the United States and find that the quantity of bread is decreasing, and the price of natural bread is going up.

In August last year, the author proposed that U.S. inflation needs to be eased by an increase in supply.

　　The increase in supply is difficult to achieve by raising interest rates, because raising interest rates will increase the cost of enterprises, and then reduce investment, further suppressing supply. Under such linkage, it is possible that prices will continue to rise due to interest rate hikes.

In addition, interest rate hikes may also affect asset prices, especially stock prices. Therefore, after the start of the Fed's January interest rate meeting meeting, U.S. bond yields accelerated and the Nasdaq fell sharply during the session.

　　In fact, the Fed is not ignorant of this situation, so the Fed still retains the possibility of flexibly adjusting the specific path of interest rate hikes when the CPI hits a new high, and at the same time, it stated that it may shrink its balance sheet more vigorously.

Previously, the Fed obviously hoped that the economic upturn would bring about an increase in supply, which would then affect prices. However, now the Fed is under pressure to maintain its credibility under huge inflationary pressures.

Judging from public information, there are also differences within the Fed.

Minneapolis Federal Reserve Bank President Kashkari said on the 28th that the Fed may raise interest rates in March to curb excessive inflation, but its actions after that will depend on the still "unclear" economic situation.

The Fed may need to ease the accelerator on monetary policy "a little" to address the supply-demand imbalance.

　　For my country, because the Fed is passive in raising interest rates, it may not act immediately, or it may raise interest rates slightly. This is just a window period for my country. my country should consider using a series of policies to respond in advance to avoid capital outflow, RMB The exchange rate depreciation is under pressure, and at the same time, my country's economy should be restored as soon as possible.

(Finish)