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Investing.com – Following the release of US inflation data, former Federal Reserve Chair and current US Treasury Secretary Janet Yellen publicly stated that there is absolutely no reason why inflation will not fall to the central bank’s target level.
Before the release of the Fed’s interest rate forecast (scatter plot), Rabobank analyst Michael Avery still believed that the Federal Open Market Committee (FOMC) would not be swayed by such a sharp increase. It would be too obvious that the central bank would become a puppet in the context of the upcoming US presidential elections in 2024. Additionally, the Fed’s preferred measure of inflation, the Core Services Index, is too high at 5.28%.
However, in reality everything turned out differently: FOMC members increased their previous expectations of 2 rate cuts in 2024 to 3, which caused a surge of joy in the stock markets.
Shipping companies were already positive. They predict a pick-up in international trade in 2024, and property prices in New Zealand are already up 12.2% year on year. Everyone comments:
“I can’t imagine what kind of crazy situation we’d be in if the Fed actually cut interest rates significantly. On the other hand, this is why some people get carried away with speculation.”
But even without clearly politically motivated expectations of a Fed rate cut, the inflation outlook is dismal. The fact that Yemen’s Houthis are attacking ships in the Red Sea was noticed by many only as a side effect, if at all. But this is already enough to cause insurance premiums on this route to rise by almost 200%, from 0.07% of the cargo value to 0.2%, according to Every.
Such challenges should be ignored no more than the fact that the Chinese Communist Party has promised economic support for 2024, and business as usual is completely irrelevant here. According to Everyone, the West needs a long-term strategy, and they are not alone in this opinion.
There is a bipartisan congressional committee that is working on the competitive issues facing China. On December 12, he published a 53-page strategy document called “Reboot, Prevent, Build.” The financial markets haven’t figured it out yet, and why should they, they can’t even figure out the details of the inflation report, according to the harsh opinion of a Rabobank analyst.
However, the contents of these 53 pages should be familiar to anyone who invests in the financial markets and does not simply speculate in the short term. Free trade, which the global economy and stock markets have benefited from for decades, will no longer exist in the future, according to the report. The United States as a world power is in danger of increasingly losing its relevance, and we can only try to prevent this through decisive action.
Democrats and Republicans agree. Only tariffs can restore economic clout.
Under Donald Trump’s presidency, the initial trade war erupted over demands for China to allow more American agricultural imports to reduce its trade deficit. But what the Reset, Prevent, Build report calls for goes far beyond that—free trade must end.
US dependence on China is no longer desirable, and policymakers are willing to accept the consequences. They are already looking for alternative export markets because they know China will respond to the new tariffs with retaliatory measures.
The Customs Act of 1930 should be changed to lower the threshold for duty-free imports into the United States. This will not allow individuals to order cheap Chinese goods duty-free. A similar approach is being explored in the EU as more money flows into China through shopping apps such as Temu & Co, leaving local manufacturers and retailers at a disadvantage.
However, the new strategy will affect financial markets not only indirectly, but also directly. US companies will be required to disclose their risks to China. American investors would be required to divest their Chinese shareholdings during a one-year transition period, and the transfer of American technology would be further hampered by preventing Chinese investment in the United States.
This is a rough roadmap for the economic future: from free trade and roaring profits to hermetic, ideological trading blocs.
At the end of the day, it’s not about the stock markets, even if it helps the incumbent US President in an election year. But both Democrats and Republicans are concerned with ensuring US primacy, no matter which camp the president falls in. Every dollar that goes to China weakens its own power and strengthens its adversary. This situation must end.
Everyone comes to the conclusion that this will change the world, and in a direction that will no longer allow lower interest rates and the associated rapid growth in stocks.
From the editor
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2023-12-15 11:34:00
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