On the 21st, American economists cautioned against optimism regarding the possibility of an economic recession this year as they are exposed to three factors: ‘worsening unemployment in the job market’, ‘expanding refinancing’, and ‘weakening the supply chain and the impossibility of an interest rate cut if high prices return.’
On the 19th, Trend Force, a semiconductor market research company, announced a report predicting a temporary price increase due to ‘production control’, saying that the key variable in this year’s semiconductor prices is ‘continued production cuts’, making it seem difficult for the Korean government to stimulate the semiconductor economy.
Economists have revealed that the impossibility of an interest rate cut is higher than last year in government policies in response to inflation rising again or the economy losing momentum this year, increasing the likelihood of an economic recession.
“Despite strong demand, we are still keeping inflation down, and the question is, are we going to be that lucky in the future? “I wonder if it will happen,” he told NYT.
The NYT said, “What’s worse is that we may have to reconsider raising interest rates,” adding, “One of the reasons for the decline in inflation in 2023 is the significant improvement in the supply side of the economy, but no one expects a similar supply recovery this year or 2024.” “There are almost none,” he said on the 21st.
In the post-pandemic supply chain recovery, last year's general normalization increased the influx of workers due to the Democratic Party's immigration rebound policy and Americans' return to the job market, and companies were able to secure the materials and labor needed to meet demand without raising prices too much. However, this year, the service sector In a pressured price and wage system, the wage growth rate is largely maintained relatively strong due to the demand for workers.
The NYT diagnosed that for inflation to continue to fall, a slowdown in demand is needed, and a further slowdown in demand is needed in the United States, especially in the service sector, but this cannot be achieved because service prices are more closely related to wages.
The financial market made a mistake in predicting a recession last year, and thanks to the boom in which both the stock and bond markets rallied, the mistake was effectively offset by making investors feel richer and encouraging companies to borrow money more cheaply.
On the other hand, the NYT pointed out that this year, the US Federal Reserve is being forced to act more aggressively in an economy that relied on short-term effects last year, increasing the risk of causing a future economic recession.
The NYT said, “If the forecasters were wrong in predicting a recession last year, they could be wrong again in the opposite direction this time,” adding, “The risks that economists highlighted for 2023 have not disappeared, and recent economic data is still mostly positive, but there is a problem beneath the surface.” “There are some cracks,” he said.
The representative crack is the ‘exhaustion of low interest rate benefits’.
Most companies relied on debt to refinance during the ultra-low interest rate period of 2020, 2021, and 2022, but now the pressure of higher borrowing costs has begun when they need to refinance again.
Many households with high debt due to low interest rates were able to avoid higher interest rates by increasing savings or paying off debt early in the pandemic, but these financial buffers have now entered a weakening phase this year.
Analysis of financial markets shows that extra savings are now rapidly decreasing or have already disappeared, and credit card borrowing is hitting records.
A rise in low mortgage rates has now slowed the housing market and student loan payments, which had been paused for years during the pandemic, have resumed this year.
State and local governments, especially in the United States, are cutting budgets as federal support dries up and tax revenues fall.
In a report on the 18th by Wells Fargo, a large U.S. bank, in response to a report on the 18th saying, “The economy will slow down gently rather than suddenly and make a soft landing,” Sarah House, the author of the report, said, “We are not out of the woods yet.” “We still think the risk of a recession is still high,” he told the NYT.
The NYT reported that, separate from the release of the Wells Fargo report, Wells Fargo economists released a report titled “Signs of a Weakening Labor Market,” which stated that “employment is slowing, only a few industries are accounting for a significant portion of recent job growth, and the layoff rate is low.” “It is still low, but workers who have lost their jobs are having difficulty finding new jobs.”
The Fed's aggressive action was prompted by Dallas Fed President Rory K. Logan's remarks at the joint annual meeting of the International Banking, Economics and Finance Association and the American Economic Association on the 6th, saying, "We have sufficiently tightened financial conditions." “If we do not maintain it, there is a risk that inflation will return and undo the progress we have made,” he warned publicly.
NYT responded to this statement by saying, “As a result, the Federal Reserve is leaving open the possibility of raising interest rates again.”
In his speech, Governor Logan said, “The work of restoring price stability is not yet over. “The challenge now is to complete the task of returning inflation to the 2% target in a sustainable manner,” he said. “Given the softening of financial conditions in recent months, the possibility of further interest rate hikes should not yet be ruled out.” .
Governor Logan continued, “The current rate of asset outflow is approximately twice that of the first half of 2019, and the current level of ON RRP balance provides comfort that overall liquidity is sufficient, but ON RRP (overnight reverse repurchase agreement) balance is at zero. “As we get closer, there will be more uncertainty about the total liquidity position,” he said. “Therefore, given the sharp decline in ON RRP, it is appropriate to consider variables that may lead to decisions to slow asset outflows.” “As ON RRP balances approach low levels, the rate of outflows must be slowed,” he said.
Regarding the Federal Reserve's balance sheet on this day, he said, "Security holdings decreased by $1.3 trillion, and bank reserve balances increased by $350 billion to about $3.5 trillion," and money market funds (MMFs) invested more in government bonds, thereby increasing money. It was revealed that the market interest rate remained much lower than the federal reserve rate and the ON RRP balance remained at approximately $700 billion.
The NYT said last year’s economy was “lucky.” A weak recovery in China has suppressed commodity prices and contributed to slowing US inflation, and wars in the Middle East have had a minor impact on global oil prices, but there is no guarantee that the good fortune will continue this year, he said. , a financial system crisis unlike any before, any one of the possibilities could result in the Fed being out of balance, triggered by a surge in inflation, a collapse in demand, or both simultaneously,” he said.
This year's economy is likely to be shocked by the 'deterioration of the job market' for consumers, which is the last pillar of the economic recovery that is starting small from the 'weakening of the buffer' that was exhausted last year.
“When you look at all the support that consumers had, a lot of that is disappearing,” said Dana M. Peterson, chief economist at the Conference Board. “We are falling behind broadly,” he told the NYT.
Korea, which is experiencing ‘economic recovery’ due to ‘interest rate cut predictions’ due to the stock market stimulus led by the semiconductor economic rebound, froze interest rates in January.
Trend Force, a market research firm, said on the 19th, “According to the analysis, the downward trend in DRAM contract prices, which had continued for eight consecutive quarters since the fourth quarter of 2021, was finally reversed in the fourth quarter of last year, and NAND flash rebounded in the third quarter of last year after overcoming the decline in the fourth quarter.” “Whether the memory price rally will continue in 2024 will largely depend on whether suppliers continue to and effectively control facility utilization rates,” he said, citing a temporary price rebound due to the ‘production reduction continuation system’.
In the quarterly forecast for this year, the second quarter said, “Suppliers in the DRAM and NAND flash market have begun to increase facility utilization rates from the end of the fourth quarter of 2023, and NAND flash buyers will complete inventory restocking in advance in the first quarter of 2024.” “Due to the rise in prices and early restocking efforts, price increases in both DRAM and NAND flash contract prices were moderated by 3-8% in the second quarter.”
The report said that in the third quarter, “North American CSPs will restock inventory more actively as traditional peak seasons arrive, and DRAM and NAND flash contract prices may continue to rise, but if suppliers maintain capacity utilization below 100% (still operating at peak load),” the report said. “If not operating at capacity, we could see a broad increase of 8-13% compared to the previous quarter,” he said, with limited price increases.
Regarding the semiconductor market in the fourth quarter, “if suppliers maintain an effective production control strategy, the overall price rally is expected to continue,” and “production control” and “continued production reduction strategy” were still pointed out as key variables in the market.
On the 11th, Bank of Korea Governor Lee Chang-yong froze the base interest rate at 3.50% per annum for the eighth time in a row, saying, “Five members of the Monetary Policy Committee agreed to maintain the base interest rate at 3.50% for the next three months,” adding, “Under the current situation, interest rates will be lowered for the next six months.” “It is not an easy situation to predict,” he said.
The Korea Economic Daily reported on the 21st that “four out of five recommended Samsung Electronics” as a result of the stocks recommended in the first quarter by the research centers of five securities companies: Samsung, NH Investment, Korea Investment, KB, and Kiwoom.