What are the signals released by the reorganization of the White House economic advisory team?

　　(Financial World) What are the signals released by the reorganization of the White House economic advisory team?

　　China News Agency, Beijing, February 16th: What are the signals released by the reorganization of the White House economic advisory team?

　　China News Agency reporter Liu Liang

　　Recently, US President Biden made adjustments to the core members of the White House's two major economic advisory teams.

In the current situation where the U.S. economy is facing relatively large downward pressure, the adjustment of the core personnel of the economic team is arousing people's imagination.

　　The U.S. economy faces "three big mountains"

　　Inflation, interest rate hikes and recession were almost the most frequently used words in discussions of the US economy last year, and this year is no exception.

Inflation is still at a high level, and various risks caused by continuous interest rate hikes are emerging, all of which have put considerable pressure on the annual growth of the US economy.

　　In 2022, the United States will experience the worst inflation in 40 years.

Affected by factors such as the outbreak of the Ukraine crisis, the U.S. consumer price index (CPI) has soared since the first half of last year.

In June last year, the year-on-year increase of CPI in the United States once reached 9.1%, the highest value since November 1981.

　　Facing the continued "high temperature" of inflation, the Federal Reserve has raised interest rates several times since it started its current rate hike cycle in March last year, trying to curb the rise in inflation.

Monetary policy is "as fierce as a tiger in one meal operation". Inflation growth in the United States slowed down in the second half of last year. In November last year, the year-on-year increase in CPI fell to 7.1% more than expected.

　　Liu Ying, a researcher at the Chongyang Institute for Financial Studies at Renmin University of China, pointed out that in early February this year, the Federal Reserve announced a 25 basis point rate hike after its first monetary policy meeting this year, raising the US federal funds rate to between 4.5% and 4.75%.

This is also the eighth consecutive interest rate hike by the Federal Reserve, with a cumulative increase of 450 basis points in less than a year, reaching a new high since September 2017.

　　As the Fed continues to raise interest rates, its side effects such as suppressing the economy appear.

Liu Ying said that the market generally expects that the Fed will continue to raise interest rates by 25 basis points in March and May this year, and the US federal funds rate may exceed 5%, reaching the highest interest rate level since this century.

　　"The hysteresis effect of aggressive interest rate hikes and the economic recession and financial risks brought about by interest rate hikes may simmer. Not only that, the greater interest rate hikes implemented by the European Central Bank and the Bank of England will also have a negative spillover effect on the US economy." Liu Ying He said that due to the continued interest rate hikes by the Federal Reserve, the U.S. economy may experience a slight recession this year.

　　What are the considerations for the "replacement" of the economic advisory team?

　　Faced with increasing downward pressure on the economy, the Biden administration has to reconsider its employment.

　　In the latest appointments, Biden made adjustments to the core members of the White House's two major economic advisory teams.

Federal Reserve Vice Chairman Lyle Brainard will succeed Brian Dees as director of the White House National Economic Council.

Jared Bernstein takes over as chair of the White House Council of Economic Advisers, succeeding Cecilia Routh.

　　According to reports, Brainard, 61, served as the national economic adviser during the Clinton administration, assistant secretary of the Treasury during the Obama administration, and served as a member of the Federal Reserve Board of Governors in 2014.

Bernstein, 68, is a longtime economic adviser to Biden and served as chief economist at the Labor Department during the Clinton administration.

　　Talking about the Biden administration's employment adjustment, Liu Ying believes that in addition to economic factors, there are also political considerations behind it.

The current U.S. economic development situation is related to the achievements of the Biden administration. 2024 is the year of the U.S. presidential election. If the U.S. economic situation deteriorates seriously this year, it will inevitably cast doubt on Biden’s ability to govern and affect his own and his party’s 2024 elections. momentum.

　　"This personnel adjustment not only reflects the Biden administration's anxiety in the face of this year's economic downward pressure, but also sends a signal to the outside world that the Biden administration is preparing for the election year ahead of schedule," Liu Ying said.

　　In Liu Ying's view, Brainard represents the "moderates" of the Federal Reserve's monetary policy and adopts a coordinated macro policy; Bernstein is more familiar with people's livelihood and has long-term achievements in economic policies that expand opportunities for the working class in the United States.

This may help alleviate the increasingly torn American social contradictions, avoid a sharp recession in the U.S. economy this year, and also help win voter support for next year's presidential election.

　　Will the U.S. economy pick up this year?

　　Can this "replacement" save the US economy?

Experts believe that it remains to be seen, and looking forward to the whole year, the US economic trend is not optimistic.

　　Liu Ying pointed out that the supply of broad money (M2) in the United States fell by 1.3% in December last year, becoming the lowest value since the Federal Reserve tracked this indicator in 1959. Ferment and cool the U.S. economy.

　　At the same time, various risks arising from interest rate hikes are emerging.

The market currently expects the Fed to raise interest rates two more times this year.

"If the expectation of raising interest rates in March and May is realized, the US federal funds rate will inevitably exceed 5%, and high interest rates may trigger many financial risks." Liu Ying said.

　　The latest data show that in January this year, the US CPI rose by 6.4% year-on-year.

This is the seventh consecutive month of decline in U.S. inflation data, but the general rise in prices in energy, food and other areas in early 2023 once again shows that inflationary pressures facing the U.S. economy remain stubborn.

　　Ming Ming, chief economist of CITIC Securities, pointed out that the January CPI data showed that the downward path of US inflation will be more bumpy.

The downward slope of U.S. inflation in the future is not optimistic. At the same time, the Fed’s monetary policy tightening will be highly dependent on data, and it will be difficult for the Fed to stop raising interest rates in the short term.

However, given that the resilience of U.S. consumption is still relatively strong, it is less likely that the U.S. economy will fall into a moderate or deep recession, and this round may enter a shallow recession.

(over)