Last week, the first super "central bank week" in 2023 hit hard.
The Federal Reserve, the European Central Bank, the Bank of England, the Reserve Bank of Australia and many other central banks have successively announced interest rate policy resolutions, which continue to attract great attention from the global market.
In 2022, the world's major central banks will raise interest rates at the fastest and largest scale in more than 20 years, in an effort to curb soaring inflation.
Recently, as the central banks of many countries announced to stop the cycle of raising interest rates, the Federal Reserve has also slowed down the pace of raising interest rates.
The international community is arguing fiercely: When will the "pause button" be pressed for this round of global "interest rate hike"?
Where will the world economy go?
According to expert analysis, as inflation gradually slows down and economic pressure increases, it is not far from the central banks of Europe, the United States and the United Kingdom to suspend interest rate hikes.
The most critical point of disagreement is when to cut rates.
In any case, the road ahead for major central banks is not easy, and it is necessary to strike a balance between fighting inflation and stabilizing the economy.
There is a "diversion" of global central bank interest rate hikes
Recently, the "boots" of the Federal Reserve, the European Central Bank and the Bank of England to raise interest rates have landed as scheduled.
The United States has always been the "weather vane" of interest rate hikes.
On February 1 local time, the Federal Reserve announced that it would raise the target range of the federal funds rate by 25 basis points to between 4.5% and 4.75%, which was in line with market consensus expectations.
This is the eighth consecutive rate hike by the Federal Reserve since March last year, and it is also the first time in this cycle that the Fed has raised interest rates by only 25 basis points, which means that the Fed has further slowed down the pace of interest rate hikes.
Compared with the Federal Reserve, the European Central Bank and the Bank of England continue to "make money".
The European Central Bank held a monetary policy meeting on February 2, local time, and decided to raise the three key interest rates in the euro zone by 50 basis points, and reiterated that it will continue to raise interest rates by 50 basis points in March.
Counting from the start of raising interest rates in July 2022, the European Central Bank has raised interest rates four times in a row, with a cumulative increase of 250 basis points.
On February 2 local time, the Bank of England, the Bank of England, announced an interest rate hike of 50 basis points, raising the benchmark interest rate to 4%.
This is the tenth consecutive rate hike by the Bank of England since December 2021.
On February 7 local time, the Reserve Bank of Australia announced that it would raise the benchmark interest rate by 25 basis points to 3.35%, and at the same time raise the foreign exchange settlement balance interest rate by 25 basis points to 3.25%.
This is the ninth consecutive rate hike by the RBA since May 2022.
The Reserve Bank of Australia said it may continue to raise interest rates in the next few months to deal with high inflation.
The above countries have continued to raise interest rates in the past year.
However, due to pessimistic expectations of economic recession, many central banks recently announced to slow down or even stop the cycle of raising interest rates.
On January 25 local time, the Bank of Canada announced a 25-basis-point interest rate hike, raising the benchmark interest rate to 4.5%, and said that if the economic development is roughly consistent with the monetary policy outlook, it is expected to maintain the policy interest rate at the current level.
As a result, the Bank of Canada became the first central bank in the G7 to formally state a "conditional suspension of interest rate hikes".
On January 19, Malaysia's central bank also unexpectedly announced that it would stop raising interest rates and maintain the benchmark interest rate at 2.75%.
On the same day, Norway's central bank also announced a pause in raising interest rates, but hinted that it is still possible to raise interest rates by 25 basis points in March to control inflation.
Indonesia raised interest rates by 25 basis points as scheduled, raising the benchmark interest rate to 5.75%, approaching the end of the rate hike cycle.
Being led by the nose by the Fed's interest rate hike
"If you use one sentence to summarize the main characteristics of the global financial market in 2022, it is that the expected 'stagnation' is intertwined with the actual 'inflation'. The biggest event in the global monetary and financial system in 2022 is nothing more than The rapid tightening of the Federal Reserve’s monetary policy was triggered by higher-than-expected inflation.” Hu Zhihao, a researcher at the Institute of Finance, Chinese Academy of Social Sciences, and deputy director of the National Finance and Development Laboratory, told this reporter, looking back at this “bloody storm” of global “interest rate hikes” "The Fed's aggressive interest rate hikes have forced the global economy into a tightening spillover risk.
Due to multiple considerations such as curbing inflation and stabilizing the exchange rate of their currencies, central banks of many countries have to follow the Fed to raise interest rates.
According to statistics from the Bank for International Settlements, 38 central banks around the world will raise interest rates 210 times in 2022.
Among them, many developed economies even raised interest rates by 75 basis points at a time.
"The U.S. dollar is the core currency of the global financial cycle. There are large differences in the motivations for the Fed's previous interest rate hikes, but they can be broadly classified into three types: economic overheating, inflation, and pure monetary policy shocks. There are three Fed rate hikes in this round Features: High inflation-driven, fast first and then slow, with the combination of interest rate hikes and balance sheet shrinkage.” Hu Zhihao said.
Since 2022, why has the Federal Reserve raised interest rates frequently and aggressively, thus triggering a wave of global interest rate hikes?
"The direct reason is the continuous tightening of monetary policy caused by inflation exceeding expectations." Hu Zhihao analyzed that as early as the first quarter of 2021, the United States began to show signs of rising inflation.
But throughout 2021, the Fed and financial markets have continued to reinforce the belief that inflation is only a short-term problem.
Due to misjudgments caused by overestimating the elasticity of aggregate supply and concerns about the sustainability of aggregate demand, coupled with the mindset formed by a long-term low inflation environment, the expectation of short-term inflation has continued until the first quarter of 2022.
Since then, in order to curb the increasingly serious inflation problem, the Federal Reserve had to raise interest rates frequently and sharply.
"Since the financial crisis in 2008, the United States has implemented monetary and fiscal policies to stimulate economic growth, with a special focus on increasing employment opportunities, which has promoted a strong economic recovery. At the same time, there has also been an economic overheating phenomenon with rising inflation and rapid decline in unemployment. "Guo Hongyu, a professor at the School of Finance of the University of International Business and Economics, said in an interview with our reporter that after the outbreak of the new crown epidemic, the Federal Reserve implemented unconventional fiscal and monetary policies.
The soaring inflation in the United States is the result of a combination of factors such as the overheating of the domestic economy, the rise in international commodity prices caused by the conflict between Russia and Ukraine, and the sluggish global supply chain under the impact of the epidemic.
In addition, the Federal Reserve misjudged the severity and persistence of high inflation, and the tightening policy was not introduced in a timely manner, resulting in it having to adopt overcorrective measures to deal with high inflation.
Regarding the recent slowdown of the Fed’s interest rate hikes, Fed Chairman Powell said at a press conference after the monetary policy meeting that considering the cumulative tightening effect of monetary policy and the lag of monetary policy’s impact on economic activities and inflation, the Fed’s decision to slow down The pace of rate hikes, which helps the Fed assess whether the economy is moving toward its goals, to determine how much future rate hikes are needed to achieve a sufficiently restrictive policy stance.
"This time, the Federal Reserve raised the target range of the federal funds rate to between 4.5% and 4.75%, which is already close to the conventional level of around 5%. There is limited room for substantial interest rate hikes. Considering the lag of policy effects, the Fed slowed down The extent and frequency of interest rate hikes to observe the policy effect should be a matter of monetary policy rhythm.” Guo Hongyu, who is currently visiting the United States, also observed that, on the one hand, although the price of gasoline in the United States is still at a high level, it has fallen, and the price of gasoline in California has dropped from The "5" prefix returns to the "4" prefix.
The statistics for January this year also showed that the growth rate of inflation has slowed down.
On the other hand, rising interest rates led to appreciation of the dollar and widened the trade deficit.
With U.S. inflation continuing to fall more than expected and the economy facing downward pressure, there is no need for the Federal Reserve to raise interest rates aggressively. Further slowdown in raising interest rates is basically in line with the current macroeconomic situation in the United States.
"Due to differences in economic fundamentals and inflation trends among economies around the world, the interest rate hike cycle is not completely synchronized." Hu Zhihao said that some emerging market countries have "preempted" major developed economies since the beginning of the interest rate hike cycle.
As the external supply shock significantly eases domestic inflationary pressures, the time to stop raising interest rates will be earlier.
But at least from the perspective of the first half of this year, it cannot be completely asserted that the global "interest rate hike tide" will end.
Inflation reduction target is unlikely to be achieved in the short term
Although inflation in Europe and the United States has come down one after another, it is still far from reaching the ultimate goal.
Jerry Chen, a senior analyst at GAIN Capital Group, said that the United States has experienced many periods of high inflation in history, and the Fed failed to bring inflation back to the 2%-3% target immediately.
Since 1920, the United States has experienced high inflation 13 times. The inflation rate has soared above 5%. The average peak of inflation is 9.2%. U.S. inflation may reach around 5.1% in May this year; historical data shows that U.S. inflation has fallen below 4% on average for 21 months, which means that U.S. inflation may fall below 4% in the first quarter of 2024.
It cannot be ignored that there are still uncertainties about whether US inflation can continue to fall and whether the "soft landing" can be realized.
Former U.S. Treasury Secretary Larry Summers said the Fed should refrain from signaling its next move after raising interest rates this week due to high uncertainty about the U.S. economic outlook.
"Currently, the record-low unemployment rate, excessive wage growth and negative labor productivity growth are the main obstacles for the Federal Reserve to curb inflation." Guo Hongyu said that in January this year, the average hourly wage of American employees was 33.03 US dollars, an increase of 10 cents from the previous month. A year-on-year increase of 4.4%.
Wages are rising too fast, which is very detrimental to curbing inflation.
If inflation cannot drop significantly in the coming period, the Fed can only continue to maintain its tightening policy and cool down the labor market by squeezing aggregate demand.
"For the Federal Reserve, it is already a challenge to achieve the 2% inflation target, but it is even more difficult for the European Central Bank." Hu Zhihao analyzed that the euro zone is facing a more severe "stagflation" problem than the United States, and has entered the recession cycle ahead of the United States.
As the global economy slows and energy prices continue to fall, the high point of overall inflation in the euro zone has appeared in October 2022, but core inflation is still high.
Driven by labor shortages and rising wages, the contribution of service inflation to core inflation may rise steadily, making its inflection point lag behind overall inflation.
In the short term, in an environment where global financial conditions continue to tighten, aggregate demand continues to fall, and the energy crisis continues to be delayed, it will be more difficult for the European Central Bank to make intertemporal optimal choices.
As the demand effect of tightening policies continues to play out, the European Central Bank may continue to revise its economic growth forecast downwards in the future, evolving from a "shallow recession" to a "deep recession".
The World Bank has warned that the worldwide "tide of interest rate hikes" will push the global economy into recession, and developing countries in particular will face a series of financial crisis risks and lasting damage.
"The spillover effect of the Fed's rate hike on emerging market countries depends not only on the motivation for rate hikes and the fundamentals of the U.S. economy, but also on the economic fundamentals of emerging market countries." Against this background, some emerging market countries with fragile fundamentals are facing the triple impact of sharp exchange rate depreciation, continuous capital outflows and financial market shocks.
"Global growth is slowing sharply, and as more countries fall into recession, growth may slow further." In September last year, the World Bank issued a report suggesting that central banks should strengthen coordination and communicate policy decisions clearly while maintaining independence , which would help anchor inflation expectations and reduce the degree of tightening needed.
The central banks of developed economies should pay close attention to the cross-border spillover effects of monetary tightening.
Emerging markets and developing economies should strengthen macro-prudential supervision and build foreign exchange reserves.
Jia Pingfan