Waiting for September: The U.S. monetary policy situation will become clearer

  On July 28, 2021, U.S. time, the Federal Reserve announced the statement on the interest rate meeting. On the one hand, the statement believes that the US economy has made progress towards employment and inflation targets. But on the other hand, the statement of the Council of Interests also confirmed that the Fed’s main monetary policy remains unchanged, and the coordination of monetary policy has not changed. At the same time, the market’s mainstream expectations for the Fed to start the exit process at the beginning of next year have basically not changed.
  Later, Fed Chairman Powell pointed out in an interview, “We are still looking forward to further progress.” “I think there is still a long way to go before the substantial further progress required to achieve the maximum employment goal. I hope to see some strong progress.” Employment data”.
  To confirm whether “real progress” has been made, it is necessary to confirm the employment and inflation situation. However, there are still distortions and noises in current US economic data. Regarding employment and inflation indicators, different opinion leaders also have considerable differences. The author believes that around September 2021, the temporary distorting factors of employment and inflation will be eliminated to a large extent. Therefore, September is an important time to observe the current round of Fed decision-making. At that time, the situation facing the Fed will become clearer, which will also enable the Fed to make more clear decisions on monetary policy.
  The current timetable for the Fed’s QE withdrawal is difficult to determine, mainly due to the greater uncertainty in employment recovery, and the impact of high inflation is not a major issue for the time being.
  In general, around September this year, the supply and demand relationship in the labor market in the United States will return to normalization, and some temporary distortions in the inflation rate will also subside. The real trade-offs the Fed faces between employment and inflation will also become more apparent.
  The Fed may release a clearer QE exit signal in September. Based on the current progress of the US economic recovery and future prospects, the mainstream market view believes that the Fed may begin to reduce QE from the end of 2021 to the beginning of 2022. Although the exact timing of the Fed’s reduction of QE is still uncertain, the situation in September will become clearer. The Fed may reveal more information about QE withdrawal at the September interest rate meeting. If the employment recovery significantly exceeds expectations, the Fed may even provide more new clues at the Jackson Hole Global Central Bank Annual Meeting in August at the earliest. But the greater possibility is that by then the United States will still be in the process of digesting the pressure of rising labor participation rates. The increase in the labor participation rate will promote a substantial improvement in employment, but will delay the improvement process of the unemployment rate indicator. The supply and demand relationship in the US labor market may return to normal to a large extent in September, which will also make the unemployment rate and its direction of change more relevant. reference.
  However, there are also interfering factors in the Fed’s QE exit path. First of all, if the employment recovery is less than expected, the Fed’s QE withdrawal time will be variable again. Secondly, if the Fed communicates with the market about the QE withdrawal issue, the financial market will fluctuate sharply, the Fed may also be forced to reconsider the timing of QE withdrawal.
  Finally, according to data from the US Centers for Disease Control and Prevention, more than 80% of recent new cases in the United States were infected with the mutant Delta strain. Currently, about 50% of the U.S. population has been vaccinated, and some concentrated areas and populations have not yet been vaccinated, and the rate of vaccination continues to decrease. This may cause the Delta strain to continue to mutate and spread, and affect the opening of the U.S. economy and economic recovery. The Federal Reserve adjusts its monetary policy. The epidemic is still the biggest uncertainty for the U.S. economy and the global economy.
Academic point of view
The central bank’s digital currency issuance motivation, design plan and its enlightenment to China

  Liu Kai, a researcher at the National Institute of Development and Strategy,
  Renmin University of China , an associate professor at the School of Economics, Guo Mingxu, a doctoral student in the School of International Relations, Renmin University of China,
  International Economic Review, Issue 3, 2021

  The research and development of central bank digital currency has become an important area of ​​international currency competition, especially the currency competition of major countries. This article combs the research literature on central bank digital currency related concepts, issuance motives, and design plans. Based on this, combined with the experiments of central bank digital currencies in many countries around the world, it systematically summarizes and analyzes related theories and policy issues. This article found that different countries have different motives for issuing central bank digital currencies, and different motives also mean that central bank digital currencies have different design schemes. Among them, six important basic design schemes can be divided into policy design schemes and technical designs. There are two types of programs. When the central bank chooses different design options, the impact of the central bank’s digital currency on the economy and financial system may also be different. This article also puts forward relevant policy recommendations on China’s issuance of digital renminbi.