Continued weak inflation in the United States will become a stumbling block to the Fed’s rate hike in the future. With the Fed’s boots on the ground, it is impossible for a sustained interest rate hike and gold is expected to maintain its strong concussion until there is no real positive tax reform.
Fed moderate rate hike
From the Fed’s interest meeting, we can see that in the future, the Federal Reserve will step up moderately moderate doves to raise interest rates and it will be hard to further normalize the balance sheet normalization plan. Uncertainties in the economic outlook in the United States will increase. Monetary policy will be a step-by-step, step-by-step and step-by-step and slow move. Although the tax reform bill supports a modest economic growth in the United States, the jobless rate remains historically low and the labor market is strong. However, inflation, as one of the two major policy goals of the Federal Reserve, can not be effectively improved. It is also the Fed’s fundamental failure to raise interest rates continuously in the coming period.
Even if Yellen thinks inflation is a temporary factor, he insists that a good labor market performance will drive inflation higher. But there have been different voices of inflation inside the Fed, suggesting that Yellen’s expectations may be overly optimistic and his confidence in the U.S. economy will be excessive. Although the labor market is strong, it is more likely that the labor market will only increase in population and decline in quality. Non-farm payrolls clearly show that the employment of low-income workers has seen a rather prominent rise in employment, that is, the normal return from the adverse stormy weather in the previous period and the advance reserve of human resources for Christmas and New Year’s Day. However, the general salary in service industries is low, which can not effectively boost the overall demand. Slow payroll growth also confirms our concerns, from a side note that a continuous rate hike can not happen.
Low inflation in the United States is expected to continue
It is the Fed’s mission to ensure that inflation rises toward its 2% target. Although the U.S. economy grew steadily in the second and third quarters, the external economic growth was favorable and the job market expanded at a healthy pace. However, it is inefficient in boosting inflation. Although Yellen generally affirmed the performance of the U.S. economy, he emphasized the rebound in consumption. However, it is not ruled out that continued weak inflation in the United States may change the path the Fed is currently following to gradually raise interest rates. Signs of stagnation in prices may not be a short-term factor, and there is doubt as to whether a robust job recovery can effectively push prices up.
Unemployment in the United States has been falling continuously, but inflation has not yet risen, which does not meet the expectations of the Phillips Curve Economic Theory. After Phillips argues that the jobless rate is negatively related to inflation, and if the unemployment rate continues to drop, inflation will stabilize and rise. However, macroeconomic data show that the global labor market expansion did not lead to higher inflation, and the effectiveness of the Phillips curve was challenged.
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Global production of goods more concentrated in developing countries, labor costs, environmental costs significantly lower than the level of developed countries, as a whole suppressed the expansion of commodity-inflated inflation, thereby enabling advanced economies, commodity-inflated inflation is limited. The main reason why the U.S. inflation is less than expected is that on the one hand, the upstream commodity prices have risen earlier and have not been fully transmitted to the downstream market. The full competition in the market has slowed down the transmission efficiency. On the other hand, input-based inflation in the developing economies with China as the core has not yet appeared. Comprehensive analysis, the short-term increase in the efficiency of inflation conduction probability is small, the core price is expected to remain low, to suppress the Federal Reserve is expected to raise interest rates in the future.
tax reform without impact in short-term
The US tax reform outlook is not clear. The Fed did not particularly highlight the good expectation that the tax reform will have on the forward economy, saying only that the tax reform will provide some support to growth and gradual tightening will be guaranteed. Although the tax reform in the United States is unprecedentedly unprecedented in tax reduction rate, it is quite possible that the sensation of news caused by this large-scale tax reduction will be far greater than the economic real effect.
Tax reform is a long-term policy, the process is bound to be tortuous and complex, the substantive impact of commodity needs to be patient. Transnational transfers of capital and return of capital do not necessarily mean rapid growth in real investment and commodity demand. And the trillion-dollar infrastructure investment in the United States is hard to come by in the face of depleting tax sources and huge deficits.
Taking history as a mirror, the United States raised interest rates by 16 and 17 respectively after the 1986 tax cuts in the United States in 2003 and 2003. At present, the tax reform has not yet had any practical action. In the short run, the U.S. economic resilience still needs to face various tests and challenges. If the rate hike by the Federal Reserve is expected to increase sharply in the future, I believe a sharp correction in the U.S. financial assets market is inevitable and risk aversion is expected to re-ferment.
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