According to data released by the U.S. Department of Commerce on the 28th, after adjusting for seasonal factors, the U.S. personal consumption expenditures (PCE) price index was flat month-on-month in May, a sharp slowdown from the previous month's month-on-month growth of 0.3%; It increased by 2.6% year-on-year, which was also better than the previous month's growth of 2.7%.
Quarter-on-quarter, year-on-year mystery
The disclosure of PCE data, from a month-on-month perspective, seems to have been effectively controlled, and has begun to gradually maintain the pace and trend of CPI in the second half of 2023. From a year-on-year perspective, two consecutive declines also confirm that the continued interest rate hikes have begun to melt over time. It is worth noting that the sequential PCE in the core that excludes food and energy prices was also in line with market expectations.
From the perspective of branch contribution rate, Biden's voice on energy reserves also triggered a 2.1% decline in market energy prices, and a 0.2% increase in service prices offset the further trend of CPI and PCE declines.
From this point of view, the mutual offset of energy prices and service prices also shows that the policy is applied to the macro and micro experience of the huge difference, interest rate hikes and energy reserves make energy prices rise, but the rise in the economy and the cost of living brought about by interest rate hikes in turn pushes up the price of services, reflecting personal income and consumption, income rises more than expected, but consumption is less than expected.
Over the same period, personal income rose 0.5% year-on-year, above expectations of 0.4%. However, consumer spending rose by only 0.2%, below expectations of 0.3%.
With the reverse development of income growth and consumption suppression, it is enough to show that for ordinary people in the United States, opening up sources and reducing expenditure has become a measure to deal with interest rate hikes and CPI passivation.
As a result, there are more and more obstacles to the upper limit of the use of interest rate hike policy in the economic space. As an economic structure with consumption accounting for 70% of GDP, the perseverance of the individual and household economic sectors in the income area, as well as the gradual conservatism in the consumption sector, will affect the adjustment of the US economic structure.
At the same time, it will also affect Powell's obstacles in cutting interest rates, as one of the prerequisites for interest rate cuts, the speech asking for a wage cut, the economic situation is contrary to the will of the economic chief, and will only intensify the efforts of manual adjustment, although there is an expectation that the interest rate cut will land in September, if the economic data in June is still the same, it seems that CPI and PCE are in line with expectations, income rise and consumption restrictions will become new, plaguing the Fed to cut interest rates.
In the article "Powell is expected to "exchange time for space" and wait for more good inflation data" in the article of CITIC Securities, it is mentioned:
We expect Powell to "trade time for space" and wait for more good inflation data to dampen US demand and inflation.
From the perspective of the article, we will imagine where are the upper and lower limits of time and space in the United States? As the central bank of the United States: the Federal Reserve. At a time when employment and prices are the anchor of monetary policy, judging from the performance and actual operation in 2022, the priority of price control is far higher than employment, which is not only reflected in Powell's latest speech, but also in Biden's intention to use energy reserves.
This means that the Fed's policy bias will be more price-oriented, which will become an important decision and reference for the Fed to insist on raising interest rates. Conversely, the average American will suffer more from the impact of the rate hike cycle.
What's next?
Obviously, PCE, as an important reference basis for the Fed to cut interest rates, has continued to decline for two consecutive years, and urgently needs the economic data of the third month, that is, June, that is, the data disclosed next month to corroborate, so as to ensure that there are signs of a reversal. These still take time to wait, take time to verify.
The continuous downward trend will also strengthen the confidence of the market's interest rate cut expectations, which is reflected in the US stock market and Bitcoin, which is a situation of continuous price climbing and high shocks.
The relatively high asset prices, for the recovery and breakthrough of the bull market in the early stage, especially in the context of US monetary quantitative easing in 2020, indicate that in the face of higher asset prices, the realization of huge benefits will inevitably be established in the context of new monetary quantitative easing.
If the economic situation will put the Fed in a dilemma, then the high level of the stock market and bitcoin can only be required to raise the agenda of interest rate cuts on a sufficiently clear timetable in the future, especially the decline in April and the rise in May.
Although financial assets will not profoundly affect the Fed's monetary policy, this situation is stronger than others, and the Fed cannot hide its interest rate cuts.
Of course, the benefits of interest rate cuts will resolve the huge contradiction and opposition between wages and consumption, which will also put Powell in the embarrassing position of breaking his promise.
The death of the national debt
If monetary quantitative easing, based on the background of price stability, will enable the United States to unbundle financial assets, cash in huge floating profits, and achieve a win-win situation in the economic field and people's livelihood, then what is the cost?
Obviously, it is the damage to the credibility of the US Treasuries.
As we can see from the chart below, the GDP of the United States and the federal income of the United States show a strange trend, when the economic situation is good, the proportion of income growth is smaller than the growth rate of GDP, when the economic situation is bad, income often shows the same downward trend as GDP, and the latest trend in 2023 shows that the government's revenue has not only not improved in the context of a good economic situation, but has shown a downward trend.
This shows that the economic benefits brought by the economic policy and monetary policy of the United States have not made the public gain benefits, but have gained massive benefits because of the "heavy assets" of major capital projects such as bitcoin, US stocks, and villas. As a result, ordinary people have not enjoyed the dividends of the policy, but have not been able to become an ecological niche that contributes to the economy, while the American tycoons and senior officials who hold "heavy assets" have become the biggest beneficiaries of this round of policies, which is reflected in the financial situation of the United States, that is, the embarrassing situation that the good economic trend has failed to improve the income of the US government.
As the U.S. government canceled the bailout policy after the epidemic stabilized, the people's consumption level and income capacity showed a rapid decline in the context of interest rate hikes, which was reflected in the U.S. personal income tax, which became the most variable and influential factor in the U.S. government's income.
It is worth noting that since Trump provoked the trade war, the United States' tariff revenue has improved significantly, and this kind of actual income will make the United States in the future, no matter who comes to power, will only exacerbate the U.S. tariff rate.
Since the normal income of the United States cannot be effectively improved, it can only be used as an important way to increase the income of the United States through temporary means, and there is no one.
Since the epidemic and interest rate hike cycles, the number of deficits in the US government has begun to increase, and the fluctuation range of government surpluses has gradually narrowed, which is an important manifestation of the government's ability to collect taxes and the inconsistency between the economic situation and the actual situation.
In the face of the huge scale of the national debt and the high interest expense, if it blindly relies on the way of issuing government bonds to solve the gap in government revenue, it will inevitably lead to a decline in the credit of the US Treasury bonds, especially the interest rate hike since 2022, which has caused huge losses to creditors who mainly hold positions in US Treasury bonds such as Japan and the United Kingdom, and the practice of voting with their feet has begun to appear, which will also lead to the final left-handed to right-handed US Treasury bonds, and finally no one cares. Reduced to a situation of waste paper.
This may be another reason for Powell's hesitation to cut interest rates, or one of the core reasons, because he cannot bear the cost and risk of the dollar losing its global order and influence, and can only hope that the external economic effects brought by the dollar tide will offset and make up for the domestic losses.
The sheer size of the national debt has also become a huge obstacle to US monetary policy.