It is not easy for the US to revive the economy

　　Can Fed Chairman Jerome Powell replicate the success of former chairman "inflation fighter" Volcker?

Is a U.S. recession avoidable?

Can the industrial policy represented by the chip bill revive the US manufacturing industry?

At present, it seems that the answers to these questions are not optimistic.

It is not easy for the hard-won American manufacturing industry to rely on a chip bill to be reborn.

Most economists who expect the U.S. economy to shrink predict it will be a "shallow" or "mild" recession.

　　When there is no suspense to continue to raise interest rates in the first half of 2023, the voice of the US economy will enter a recession is endless, the wave inflation model is already looming, and the hard-won manufacturing industry wants to rely on the "2022 Chips and Science Act" to be reborn and Not easy.

　　In 2023, can Fed Chairman Powell replicate the success of former Chairman "Inflation Fighter" Volcker?

Can recession be avoided?

Can the industrial policy represented by the chip bill revive the US manufacturing industry?

　　So far, the answers are not optimistic.

　　The Fed will raise interest rates seven times in 2022, pushing the benchmark interest rate from a range of 0% to 0.25% to the current range of 4.25% to 4.50%, the highest level in 15 years.

For now, commodity price gains are likely to slow quickly as supply chain bottlenecks ease, and rent and other housing costs are also lower.

However, Fed officials are concerned that the labor market is too tight, and the central bank has signaled that it does not expect to cut interest rates until 2024.

　　In the early 1980s, Volcker, the then chairman of the Federal Reserve, suppressed the double-digit inflation rate by forcefully raising interest rates. While pushing the economy into the abyss, it opened the era of great moderation for the US economy.

The current Federal Reserve Chairman Powell is trying to use him as an example to quell the siege that was set up to fight the new crown epidemic. Unfortunately, Powell does not have the external conditions of Volcker.

　　On December 16, 1978, China and the United States issued the "Communication on the Establishment of Diplomatic Relations between China and the United States."

In August 1979, Volcker officially took office as the chairman of the Federal Reserve. An era of rapid expansion of globalization provided solid external conditions for Volcker to suppress inflation.

　　On the other hand, what Powell is facing is not only a United States with excessive currency issuance, but also a foreign trade system that has been "disconnected" by the Trump administration.

Despite the restoration of supply chains, and despite Powell's determination, the minutes of the Fed's December 13-14, 2022 meeting continued to say that there was an unnecessary easing of financial conditions, especially amid public uncertainty about how the Fed will respond to new economic dynamics A misunderstanding would complicate the Fed's efforts to restore price stability.

　　When the United States accepts the world with an open and inclusive mind, the Federal Reserve under Volcker has the confidence to suppress inflation and boost the economy.

When the United States treats the world with an attitude of self-admiration and self-cherishment, Powell has to look forward and backward, and be afraid.

Therefore, what is waiting for Powell may not be the great relief brought about by Volcker's interest rate hike, but various forms of recession.

　　In recent days, 23 large financial institutions — known as primary dealers, which include brokerages and investment banks — that deal directly with the Fed have listed some warning signs: Americans are spending their pandemic savings.

Meanwhile, the U.S. housing market is slumping, banks are tightening lending standards and demand has weakened to near levels that usually signal a recession.

GDP growth will decline.

　　Most economists who expect the U.S. economy to shrink predict it will be a "shallow" or "mild" recession.

The judgment of former Federal Reserve Chairman Alan Greenspan further supports this argument.

He believes: "Although the last two monthly reports have shown that the increase in the consumer price index has slowed down, I don't think this constitutes a reason for the Fed to make a big turnaround that is at least enough to avoid a mild recession." Wage growth and employment still need to go further. Weak, in order to make the fall in inflation out of temporary.

"We may have a brief cooling-off period on inflation, but I think it's too little and too late," Greenspan said. Origin. It could damage the Fed’s credibility as a guarantee of price stability. For that reason alone, I don’t think the Fed will ease policy too soon unless they think it’s absolutely necessary, such as to prevent financial market chaos.”

　　It is conceivable that the US federal government will unleash stimulus measures in response to the recession expected to start later this year, while the Federal Reserve will cut interest rates.

　　In addition to monetary policy, the chip bill is a bill that the U.S. government will do its best to curb its opponents and revive the economy in 2022. The U.S. has paid close attention to this bill because it involves industrial policy, and its essence is that the U.S. economy is more market-oriented. Roads are also a matter of principle for government planning.

　　The economic circles of the United States have always envied Germany, Japan and China, which can develop the economy through the implementation of industrial policies, but the term industrial policy has been highly politicized within the United States, believing that the implementation of industrial policies is the road of socialism, and the implementation of market economy is the only way to achieve economic development. It is characteristic of American capitalism.

In fact, the United States has been arguing endlessly about this issue since its founding.

If it weren't for the insistence of the first Secretary of the Treasury, Hamilton, to use industrial policies to develop manufacturing and adjust the tax system, today's United States is likely to still be a commodity producer that sells cotton, corn, sugar, and oil.

　　But this time the United States returns to implement industrial policies, and there is little hope of reviving the glory of the Hamilton era.

Because times have changed.

　　At that time, the United States was in the catching-up stage. In order to catch up with the United Kingdom, the American industry did everything possible to obtain technology and innovation from the United Kingdom. There were many examples of "British traitors becoming American national heroes" because of technology brought back from the United Kingdom.

The United States is now at the forefront of innovation, and innovation comes from free growth. Forcibly promoting industrial policies is not only to exploit weaknesses and avoid strengths, but the benefits obtained by relying on planning cannot quickly meet the needs of the United States at this stage.

　　In the past few decades, the U.S. government’s high degree of laissez-faire in the economy has partially lost its ability to implement detailed planning and forceful implementation. In other words, the U.S. government has already lacked the human resources and cultural atmosphere to implement industrial policies. The launch formally satisfies the American industry's desire for industrial policy, but this delicacy is not easy to digest.