systemic changes may have occurred in the fed’s policy framework
2024-10-06
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(wang han is the chief economist of industrial securities)
the u.s. government’s economic and trade policies have shaken the dollar system.in the first two decades after the end of the cold war, globalization continued to advance, and the us dollar's status as the central currency in global trade, investment and financing continued to increase. however, since 2016, the united states has pursued "decoupling and breaking links" and "small courtyards and high walls". the u.s.'s trade protection, sanctions and other measures against major trading countries such as china and russia have caused the scope of use of the u.s. dollar to shrink. the frequent use of financial sanctions by the united states has also increased market concerns about holding u.s. dollars. in this case, in order to maintain the attractiveness of the dollar, the united states needs to maintain high interest rates and a strong currency value.
however, if the united states continues its high interest rate policy, it will shake the u.s. debt system.while the united states adopts trade protection externally, it has turned to a "big government" approach internally, which has pushed the us government debt ratio to a historically high level. and judging from the recent strategic planning of the united states, the united states will still maintain high-intensity financial investment in the future. against this background, if high interest rates continue, it will mean a sharp expansion of the interest burden on debt, which will in turn lead to an accelerated increase in the debt ratio itself, triggering market concerns about the sustainability of u.s. debt.
"stabilizing the u.s. dollar" or "stabilizing u.s. bonds", the federal reserve's monetary policy framework may have undergone systemic changes.it can be seen from the above analysis that in addition to its traditional focus - employment and inflation - the fed also has to pay attention to maintaining the attractiveness of the us dollar and maintaining the sustainability of us debt. however, these two goals have contradictory demands on the federal reserve. "stabilizing the u.s. dollar" requires relatively high interest rates to maintain the attractiveness of funds, while "stabilizing u.s. debt" requires that interest rates not be too high. the fed faces the constraints of the "dual pillars". favoring one party may mean temporarily giving up the demands of the other party. the fed's recent shift toward easing may mean that the fed's policy is more focused on "stabilizing u.s. debt" in the short term.
based on the aforementioned logic, after the federal reserve cuts interest rates, global funds’ views on u.s. assets may change.the fed's sudden shift from insisting on high interest rates in the early stage to sharp interest rate cuts may point to the fed giving up its goal of "stabilizing the u.s. dollar" in stages, and the attractiveness of u.s. dollar assets has declined. however, the federal reserve has gradually weakened its goal of "stabilizing the us dollar". once the monetary policies of "ally" countries are out of sync, it may cause greater instability. looking forward, the fed's decision-making may continue to "stabilize u.s. debt" - after a period of "stabilizing u.s. debt," it is not ruled out that "stabilizing the u.s. dollar" will once again force the fed to adjust its policy orientation. these factors may influence how global funds view u.s. assets. in fact, the recent exchange rate market has reflected that the rmb has appreciated significantly faster than the us dollar index compiled in the currencies of a few us "allies". looking forward, it is also worth paying attention to whether this change will spread to other assets, such as changes in global funds' views on a-shares.
risk warning: domestic and foreign economic policy uncertainty, geopolitical risks, global economic and financial risks.
this article represents the views of the author only.
