01, Interest Rate Hike Failure

What is the purpose of the US dollar interest rate hike?

The Federal Reserve claims that in order to control inflation, it is necessary to raise interest rates and maintain them at a higher level for a period of time.

After raising rates by another 25 basis points a few days ago, yesterday Federal Reserve Chairman Powell reminded investors that there will be several more rate hikes within the year, and no rate cuts will be considered within this year.

However, the prices in the United States have not actually fallen.

Do not just look at the year-on-year CPI data, which has dropped from the previous high of 9.1% to the current 6.5%; this is year-on-year data. The reason for the decline is simply that the corresponding monthly base from the previous year is getting higher and higher.

What we need to focus on is the month-on-month data, which has been continuously rising every month until the most recent month when there was a 0.1% month-on-month decline. This kind of drop is negligible, indicating that US prices are still at a very high level.

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If the US dollar's interest rate hike is for the purpose of controlling inflation, it is clear that so far it has been a failure.

02, Data Comparison

Last night, the US Department of Commerce released the latest trade data, showing that the US trade deficit further widened in December of last year.Compared to November, in December: imports increased by 1.3%, but exports declined by 0.9%, leading to a monthly trade deficit of $67.4 billion.

At the same time, the Department of Commerce also released the annual data, showing that the United States' annual trade deficit reached a new record high of $948.1 billion, an increase of 12.2% compared to the previous year.

In 2022, China's trade surplus reached 5.9 trillion yuan, but the United States' trade deficit, when converted to yuan, exceeded our surplus.

In the meantime, our country's State Administration of Foreign Exchange also announced an economic figure.

By the end of January this year, our foreign exchange reserves once again increased on a month-on-month basis, marking a continuous rise for four months against the trend.

Compared to the annual low in September last year, our country's foreign exchange reserves have increased by more than $150 billion, which is approximately 1,000 billion yuan when converted to yuan.

These two sets of data from China and the United States reflect the stark differences in the economies of the two countries from two perspectives.

The Federal Reserve has been continuously raising interest rates, but now the US dollar has entered a downward depreciation channel, and the US economy has shifted from prosperity to decline. Our country is steadily developing its economy, and the economic recovery is now evident, especially since the beginning of 2023, with strong consumption growth, it is very likely that domestic demand will replace trade as the main driver of economic growth within this year.

From this perspective, the US dollar has still lost.

03, SummaryIn addition, regarding the balance of payments, our country has also been continuously improving in recent months.

In December last year, the net inflow of northbound capital exceeded 35 billion yuan, and by January of this year, this scale expanded to over 140 billion yuan.

Overseas capital continues to be optimistic about the recovery of China's economy and also the capital market, therefore it is believed that the total inflow in 2023 will reach over 300 billion yuan, which will also more stably push up our foreign exchange reserves.