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Powell's "three Dao"

Enlarged font  Narrow font Release date:2018-06-16  Browse number:1
Note: In February 5th, the three major stock indexes of the New York stock market plunged, the Dow Jones Industrial Average fe
 In February 5th, the three major stock indexes of the New York stock market plunged, the Dow Jones Industrial Average fell more than 1100 points on a single day, and the market value evaporated 1 trillion and 250 billion US dollars a day, causing a round of global stock market plunge. On the same day, Jerome Powell was sworn in as chairman of the Federal Reserve Board.
When I took office, I was hit by a blow. Even before February 5th, many people foresee the possibility of a callback of US stocks. But no one thought it would be so dramatic. It seems that the chairman of Powell really does not work well. There are three ways to wait for him.
The first way is how to smoothly connect with Yellen and quickly establish prestige. Over the past 4 years, the Fed has not only ended quantitative easing, opening the way to normalizing monetary policy such as increasing interest rates and reducing balance sheets, but also maintaining a moderate recovery in the US economy in the past 4 years. This process has been relatively stable and without much twists and turns. Although Powell appears as a continuation of Yellen's policy, it remains to be seen whether he can maintain control of the overall situation as Yellen did. In addition, Powell's background in Powell's academic background has been repeatedly mentioned as the Federal Reserve Chairman of the Fed as the first not an economist. Before he joined the Federal Reserve in 2012, he received less formal training in economics and monetary policy. It is not easy to establish prestige among many economists.
The second way is how to grasp the pace of tightening monetary policy. As the federal funds rate rises and the balance sheet decreases, the bubble risk of the US stock market and housing market is constantly gathering. The "black Monday" stock market crash is widely believed to be triggered by the increase in the rate of interest raised by the Federal Reserve in March. Many experts and market people have repeatedly mentioned that the current US economic growth has continued to exceed its potential growth rate, which could push the long - tired core inflation rate in the United States to rise significantly, and thus objectively demand the fed to speed up the pace of the monetary tightening. With the progress of the interest rate reduction process, its superimposed effect will also have a significant impact on the stock market in the US. Whether the stock market crash in 1987 or the international financial crisis in 2008, the Fed's monetary policy has tightened before it broke out. It is foreseeable that in the next day, the US stock market, the property market, the bond market will be more sensitive to the market, and Powell's statement will be more cautious.
The third way is how to balance the monetary policy and balance the impact of Trump administration's policies on the US economy. For more than a year since the Trump administration took office, its economic policies have been very modest. From the signing of the tax reform bill to the call for Congress to adopt a cross party supported infrastructure investment bill, and then to trade protectionism stand increasingly tough. All of this will have an impact on the pace of US monetary policy. In particular, the contradiction between these economic policies has increased the difficulty of Powell's next step. For example, the two strategy of tax cuts and infrastructure, once implemented, is likely to boost inflation, forcing the fed to speed up the pace of raising the rate of interest rates, which will give rise to the dollar index. But at the same time, the strong dollar will further boost the US trade deficit, but the Trump administration is very serious about reducing the trade deficit. This is equivalent to requiring the Fed's policy to achieve both positive and negative two objectives, which is an "impossible task".
An analysis has pointed out that "the identity of the Republican Party, the advocacy of supporting financial regulation relaxation and the relatively mild monetary policy position, or the important reasons for the successful election of Powell". This is also a story. If only "relatively modest monetary policy stance", Yellen's resignation would be a bit of a coincidence. What the Trump administration values more is probably his subtle attitude towards "supporting financial deregulation", which is in sharp contrast to Yellen's position. Powell's "Republican identity" seems to be hinting that the Fed's independence in monetary policy in the next 4 years needs a big question mark.
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