The Time And Risk That The Federal Reserve Will Gradually Normalize Interest Rates Are Not Small.

The longer the US Federal Reserve gradually normalize interest rates, the greater its risk of economic and financial instability.

At present, U.S. economic growth, labor market conditions and consumer price index and other economic indicators indicate that the Fed's next interest rate hike may be too late.

If you agree that the Fed's policy should be based on the viewpoint of economic data performance or the Fed's monetary policy is always lagging behind, you should be able to accept the view that the major adjustment of the Federal Reserve's credit position is always too late.

Based on recent economic growth in the United States,

The market and inflation data show that it is very difficult to understand why the Fed has been postponing the gradual normalization of the base money (M0) step by step, and still maintains very low federal funds rate.

The Fed's monetary policy is driven by variable factors.

The latest data show that the US GDP growth rate increased by 1.1% in the first quarter, with an annual growth rate of 2.1%.

Most people think this growth rate is too low, but the problem is that even if the growth rate of 2.1% exceeds the potential and non inflation growth rate of the United States (the growth rate and productivity, available labor and physical capital resources), the potential non inflationary growth rate will remain at 1.6% for fifth consecutive years.

Can it blame the Fed? Of course not.

Because the size and efficiency of labor and capital scale is a structural problem that structural policies must solve.

Of course, the Fed can support domestic demand through appropriate credit policies, but labor productivity (i.e. human capital quality) and best practice investment depend on education, labor training, investment incentives and trade policies.

It has done all it can or has done more, but the other two economic factors have not met the goal of achieving the average potential growth rate of 2.7% over the past twenty years.

Therefore, considering the structural problems that continue to be faced, the real growth rate of 2.1% is acceptable.

It should be recognized that, in the absence of financial and structural policies, the Federal Reserve uses most credit to support fixed income and employment data, which will strongly support domestic demand in the coming months.

The real disposable income of the US has increased by an average of 3.4% over the past four quarters and 3% in the four quarter.

Steady growth in income also pushed up the personal deposit rate to 5.8% in the first quarter of this year, the highest level in the past 20 years.

Strong employment figures for last Friday (July 8th) reflected a significant increase in service sector output.

The service sector accounts for about 90% of the US economy and the largest number of jobs.

The latest survey shows that health care, social services, finance and insurance, retail and wholesale trade, professional and technological services activities rebounded vigorously, which is crucial to stimulating domestic demand.

Economic indicators measuring enterprise confidence, new orders and employment growth are at a high level, indicating a steady expansion in demand and output.

Nevertheless, the unemployment rate in June was 4.9%, which was in line with the level at the beginning of the year, only slightly lower than the same period last year.

Labour market data also show that further reductions in unemployment may have hit structural barriers.

Considering the current

The dynamic and exceptionally loose credit stance will continue to support demand, output and price growth in the next two years due to the long-term lag of monetary policy.

This may trigger a typical problem in business cycle management, that is, stimulus policies far exceed the needs of economic development.

Last week, it was expected that the Fed's next interest rate increase would be around Christmas, not September.

But no matter when the Federal Reserve raises interest rates, it needs to be kept in mind that the longer the Federal Reserve will gradually normalize interest rates, the more risky it is for economic and financial instability once these policies are imperative.