The US Economy Is Walking Between "Stagnation" And "Inflation".

At the end of this month, the US Federal Reserve's total purchases of $600 billion (QE2), which was launched in November last year, will end. This makes the Fed meeting on 21 to 22 this month particularly attractive.

For the Federal Reserve already standing at the crossroads, is it inclined to tighten cautiously?

Or will you choose to continue to relax?

People are eager to see some clues about their future policy trend through this meeting.

However, in the context of the recent sluggish macroeconomic data and rising inflation index in the US,

In June 17th, an interview with our correspondent, Bian Wei Hong, an analyst at the Bank of China (601988, stock bar) International Financial Research Institute, said that a series of data released recently showed that the US economy is now facing double risks of "stagnation" and "inflation", and the Federal Reserve, which shoulders the dual mission of promoting employment and stabilizing prices, is also in a dilemma.

Before the economic situation is clear, the Federal Reserve will find it difficult to find a solution to the problem unless it is contemplation.

So, at the last conference before the end of QE2, the Fed should not be eager to launch a QE3 to show its loose stance, nor would it consider tightening the tightening options such as the balance sheet or even increase in interest rates.

In the first quarter of this year, GDP growth in the US dropped sharply from 3.2% in the previous quarter to 1.8%.

In the two quarter, from manufacturing index, consumer spending to the real estate market, all data showed little optimism.

In particular, the unemployment rate rose to 9.1% in May and hit a new high in the year.

Such weak data has led to speculation that the Federal Reserve's launch of the QE3 is heating up, but most analysts think this is very unlikely. At least, the Fed will not rush to make an additional announcement at the June meeting.

Bian Weihong believes that the United States is not eager to launch QE3. The main factor is waiting time to confirm whether the United States has entered a new era.

The question now is whether the Fed has any other way to stimulate the economy if there is a sharp slowdown in the US economy and inflation in the future, except for QE3.

In response, Fed officials say there are still tools.

The first is to further strengthen communication with the public.

At present, the Fed has convinced investors that it will maintain near zero interest rates over a long period of time.

In the future, if necessary, the Fed can send more signals to investors to believe that the financial environment will continue to be relatively loose, including the commitment to keep interest rates unchanged for a long time or to maintain a large balance of assets and liabilities before the economic and inflation indicators reach a certain level.

Second, the Federal Reserve can reduce the deposit reserve rate of financial institutions in the Federal Reserve.

The current interest rate is 0.25%, and Fed officials say they can further reduce it if necessary, so as to encourage banks to lend more.

Finally, the Fed can extend the duration of certain securities held by it, which will also help to lower long-term interest rates.

However, the Fed also said that all of these methods have shortcomings in one way or another.

In the context of complex economic and inflation prospects, these tools will not be readily available.

Like the reason why QE3 will not be launched soon, although the threat of inflation has increased, the Fed is unlikely to release any tightening signals due to lack of clear judgement of the situation.

Data released by the US Department of labor on 15 may show that the consumer price index increased by 0.2% in May, which was higher than the 0.1% market growth rate and increased by 3.6% at an annual rate.

Excluding core fluctuations in food and energy prices, core inflation rose 0.3% in May, the largest increase in the past 3 years, with an annual rate of 1.5% rising, which is higher than the 1.4% market growth forecast.

However, as the Fed persists in taking core inflation instead of the overall inflation index as the basis for decision-making, core inflation, which is still within its inflation target (below 2%), is not expected to touch its nerves.

Moreover, in successive statements of interest, the Fed insists that the current rise in food and energy prices is temporary and will not lead to wider inflation.

Under this guidance, coupled with the downturn in the macro-economy, the Federal Reserve suddenly decided to step on the brakes at the meeting almost impossible.

Bian Weihong believes that the Fed's substantive tightening action may begin at the end of this year.

In the first place, more pitional policy instruments were likely to be adopted, such as reducing market liquidity by adjusting reserves, providing large time deposit (CD) products for banks, expanding the scale and duration of counter repurchase agreements.

From the end of 2011 to the beginning of 2012, it may start to reduce the balance sheet and sell long-term bonds, which will take about 4 years to return to pre crisis levels.

Finally, it is expected that the Federal Reserve will start raising the federal funds interest rate target in early 2012.

As the short-term interest rate has a wide impact and mainly affects the real economy, the adjustment of the tool is mainly focused on the real economy.

If the economic and financial development situation calls for an expedited exit from the current easing policy, the Fed will first increase the deposit reserve ratio.

At present, the federal funds futures price shows that after February 2012, the probability of raising interest rates by the Federal Reserve is 70%, and by the autumn of 2012, interest rates may rise to 1.25%.