The dynamics between the supply and demand structures of the Chinese and American economies are witnessing a converging trend in 2023. This evolving relationship is accompanied by increasing challenges in monetary policy and operational tool selection, especially for China, as disparities in monetary policies between the two countries become more pronounced.

In January 2023, U.Sretail sales defied expectations with a significant upswingThis wasn't merely confined to the improvement in food service sectors; the consumption of goods also registered a remarkable performance that surpassed market forecastsNotably, despite a persistently tightening monetary environment, American households have not seen a substantial decline in their income-generating capabilitiesThis resilience in demand, seemingly at odds with the tightened monetary environment, is supported by two primary factors: the ongoing release of “excess savings” from large-scale fiscal subsidies enacted by the U.S

government during the pandemic, and a tightening labor market, where protective industrial policies and the gradual easing of pandemic restrictions have fostered growth in job demand across both manufacturing and service sectors, thereby boosting employment and wages.

The U.SConsumer Price Index (CPI) in January has shown substantial increases in two main categories: core non-durable goods and core non-residential servicesThis reflects the tightening of the labor market, as high wage growth extends the wage-price spiral for longer periodsIn light of these developments, there seems to be a consensus on revising upwards the CPI forecasts for the U.Sin 2023 while slightly downgrading predictions on unemployment ratesThe Federal Reserve may likely increase interest rates until May 2023, with no anticipation for a shift toward rate cuts within the year

• Capitalizing on Underperforming Assets in the Recovery
• Global Oil Giants Announce Sudden Cut!
• What Happens if Bank Deposit Rates Drop to Zero?
• Will the Fed Extend Rate Cuts?
• Boosting Consumption to Drive Growth

Consequently, the dollar index is projected to maintain values above 100 for a considerable duration.

Domestically, the state of the real estate market and the ongoing demand for investment in infrastructure is not conducive to a shift by the central bank towards tightening measuresDespite noticeable improvements in transaction volumes in first-tier cities during and after the Spring Festival, the broader national trend indicates that the decrease in income expectations among residents over the past three years remains largely unaddressedAmid a decelerated pace of urbanization, the potential recovery of confidence in the real estate market in first-tier cities may come at the cost of prolonged sluggishness in the second and third-tier city marketsAdditionally, there is a strong inclination among residents to prepay their mortgages, suggesting that any signals of tightening operations from the central bank at this juncture could exacerbate the asset contraction pressure on commercial banks.

Infrastructure investment has been a critical lever for stabilizing growth, especially after bearing a considerable burden in the latter half of 2022. Without a prior improvement in the confidence surrounding the supply-side of real estate, infrastructure projects are likely to remain crucial in stimulating economic growth in the near future

The stark contrast in the January 2023 credit data, highlighting a scenario where household demand remains tepid while corporate demand is robust, further illustrates the reality that the central bank cannot embark on any tightening moments at this time.

Nevertheless, the re-evaluation of the Federal Reserve’s interest rate trajectory is placing external constraints on the liquidity injection operations of the People's Bank of ChinaCurrently, the timeline for any reserve requirement ratio cuts can be postponed; however, this suggests a reduced likelihood for the central bank to employ rate cuts as a means to stimulate credit expansion in the immediate termThe leeway for utilizing price mechanisms to guide improvements in the real estate market demand appears limited in the short term, with a broader recovery still reliant on improvements in resident income expectations.

From a foreign exchange perspective, with the prospect of an extended tightening path by the Federal Reserve, the renminbi (RMB) may encounter fresh pressures of bidirectional fluctuations throughout the year, complicating a straightforward path towards appreciation

Moreover, the rationale for optimizing pandemic control measures and easing restrictions alone does not suffice in conclusively determining that China's economic growth rate in 2023 will significantly outpace that of the U.SChanges in consumption behaviors among residents during the three-year period of the pandemic, combined with a real estate sector currently at a low point, and prevailing expectations of residential income needing uplift, all decisively impede the potential rebound of consumer spending on services after the adjustments in control measures.

In terms of goods consumption, while there is a marked recovery in the consumption environments of small retail outlets, demand for automobile purchases has noticeably surged, driven by anticipations regarding changes in subsidy policies, thereby pushing certain purchases to the latter half of 2022. Additionally, improvements in completed real estate projects have been relatively moderate, indicating that recovery in discretionary commodity consumption may not be a quick process.

Viewing the landscape of consumer momentum in the U.S., lingering demand following prior fiscal stimuli continues to release, aided by marginal easing of pandemic-related restrictions and the introduction of protectionist industrial policies