American economy between two waters

Price pressure has become a central topic in American political life.

The United States hesitates between a slowdown in the economy and rising inflation. The Fed has chosen that side. Soft landing is possible, but the route is narrow.
Inflation has been a thunderous resurgence in the United States for several months. The CPI, the widest consumer price index, currently shows an annual rise of almost 8%, while the index measuring “core” inflation, excluding energy and food, has risen by more than 5% in the mid-1980s. It was not seen after that. ..

Price pressure has become a central topic in American political life. Gas pump photos with fuel prices are on the rise on social networks, showing that the surge per gallon of gasoline (about 3.8 liters) averages over $ 4 and mainly over $ 5 in California. I am. In the Senate as well as in the House of Representatives, there is active debate over the responsibility of the Democratic Party of Japan and its massive support and recovery plans voted in 2021.

However, the latest research by the Federal Reserve Bank of New York on the breakdown of the causes of fuel rises across the Atlantic Ocean is formal. Since November last year, more than 90% of this fluctuation has been due to supply disruptions, not increased demand. , This is currently virtually stable for 4 months.

Even though the lever is essentially demand-related, the Fed has not yet confirmed Jerome Powell in his post under strong pressure from the Democratic administration, especially the Senate, and his mission is 2 End of the month-Collecting the issue, at a meeting on March 16th, it was decided to raise interest rates to 0.25% in the first uptrend since December 2018.
It will also increase to 1.9% as of December next year and 2.8% in 2023, and will continue this path at each meeting scheduled this year to end years of accommodative monetary policy. In addition, balance sheet shrinkage may begin early in the third quarter of this year to complete and accelerate the normalization process.

Amid growing concerns about the potential recessive effects of this turning point, Washington agency President Jerome Powell confirmed it strongly on March 16. The US economy is strong, the employment market is very dynamic, and it can withstand the rapid normalization of monetary policy. .. In short, you drive around and have nothing to see. However, the economic slowdown is already noticeable. The MMS Montpensier’s indicator of economic momentum is below 50 and has been sluggish for several months. Even consumer sentiment, which has been at the top for a long time, is showing signs of weakness. The March monthly survey from the University of Michigan was 59.7, the lowest since 2011.

In this regard, a soft landing in the US economy is still possible under three conditions.

First, after the turmoil associated with COVID and the war in Ukraine, the value chain will return to normal. This is essential to ease inflationary pressures, but it will take time, especially as long as China sticks to its “zero corona” policy. Needless to say, sanctions on Russia are unlikely to be lifted soon unless the situation in Ukraine improves dramatically.

The second condition also depends on the resurgence of China and its economy and is essential for resuming the dynamics of the world. Recent signals call for cautious optimism. In particular, in his final remarks by Prime Minister Li Keqiang on March 11 at the end of the People’s Congress in Beijing, he expressed his determination to support activities to achieve the goal of 5.5% annual growth. ..

In addition, China’s central bank is more cautious than other banks during the COVID crisis, leaving room for significant relaxation of monetary and macroprudential policies.

The third and final condition is to limit the scope of potential tax restrictions in the United States as much as possible. As of the end of January 2022, the deficit for the last 12 months was at a profound level of -18% of GDP. Depending on the measures voted by the end of the year, GDP may reach -8%, -10%, or -12%. That is, there is a difference limit of + 10%, + 8%, or + 6%. GDP.

This difference should be limited as much as possible to allow soft landing. In this regard, the Ukrainian crisis, which allows for a-limited-return of the bipartisan approach that has long been at the heart of the American system, is an opportunity for Joe Biden to rush to seize.

If all these conditions are not met immediately, the Fed is expected to quickly adjust its approach, show prudence and agility, and the health of the global economy and markets at this price …