The U.S. economy currently faces the risk of a rebound in inflation. On February 11, Federal Reserve Chairman Powell testified on semi-annual monetary policy at a congressional hearing, emphasizing the persistence of inflation issues and stating that the Fed will remain patient and not rush to lower interest rates. This statement reflects the Fed's cautious attitude toward the current economic situation, particularly under the uncertainty of Trump administration policies.
Powell noted that the overall performance of the U.S. economy is strong, but the unemployment rate remains low, and the inflation rate is far above the Fed's 2% target. Hence, the Fed has no immediate plans to cut interest rates, emphasizing the need for time to analyze the impact of new government policies on the economy and inflation. Currently, the U.S. inflation rate continues to exceed 2%, suggesting that a hasty rate cut would be unwise. Factors such as tariff and immigration policies from the Trump administration may also exacerbate inflationary pressures.
Meanwhile, U.S. Treasury yields have risen again. On February 11, the yield on the benchmark 10-year U.S. Treasury, a global asset pricing anchor, returned to above 4.5%, while the dollar index slightly retreated, hovering around the 108 mark. Experts analyze that Trump's policies may affect the labor market and employment costs, further pushing up wages and prices, creating a wage-price spiral and increasing inflationary pressure.
StanChart China's Chief Investment Strategist Wang Xinjie pointed out that the Fed's future monetary policy will need to balance between the U.S. economy and inflation. Against the backdrop of an inflation rebound, the Fed's hawkish stance seems increasingly apparent. Former U.S. Treasury Secretary Summers also warned that although a rate hike is still a small probability event, it cannot be ruled out under uncertain data.
Powell's cautious remarks align with the stance of other Fed officials. Cleveland Fed President Mester remarked that maintaining current rates is appropriate while waiting for inflation to recede and further analyzing the economic impact of Trump's policies. New York Fed President Williams expects that the U.S. inflation rate will gradually return to the 2% target in the coming years, but uncertainties remain.
Overall, Fed officials generally believe that the economic outlook is fraught with uncertainties, especially in areas such as fiscal, trade, immigration, and regulatory policies, which could have significant implications for future inflation dynamics and monetary policy.
