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JRJ: The complex situation of Sino-US relations also affects the world economic pattern. In your opinion, is the current trade dispute between China and the United States a problem of just China and USA?
Hamilton: This is not just an issue of U.S. relations with China. President Trump has also threatened new trade sanctions against Mexico, another of our major trading partners, in order to try to force Mexico to take more action to stem immigration into the United States. There have also been tensions over trade policy with Canada and Europe, other major trading partners who have traditionally been allies of the United States.
JRJ: The U.S. economy has maintained a strong growth momentum during the Trump Administration. What do you think is the core driving force of U.S. economic growth? In the next decade, will the United States be able to maintain its leading position in the world by relying on its current core growth power?
Hamilton: President Trump’s efforts to reduce regulation and restrictions on U.S. businesses played some role in U.S. economic growth. A bigger factor was there was so much excess capacity and unemployment as a result of the financial crisis in 2008. It took a long time to get those people and capital back to work. As long as the unemployment rate continued to fall, the result was that the U.S. economy could grow faster than the growth rate of the working-age population. I think that period of above-average growth is coming to an end now, and the U.S. economy will grow more slowly than it has over the last decade. But the U.S. is still in a better situation than Europe.
JRJ: At present, the economic growth of the world’s major economies has shown signs of decline, and central banks have adopted loose monetary policies. How likely do you expect the Fed to cut interest rates during the year? How long will the strengthening trend of the US dollar last?
(Citation: Chairman Jerome Powell said Tuesday that the Federal Reserve is prepared to respond if it decides the Trump administration’s trade conflicts are threatening the U.S. economy. Investors read his remarks as a signal that the Fed will likely cut interest rates later this year.
Powell’s remarks helped drive up stock prices, with the Dow Jones Industrial Average ending the day up more than 500 points, or 2%.
Speaking at a Fed conference in Chicago, Powell said, “We are closely monitoring the implications of these developments for the U.S. economic outlook and, as always, we will act as appropriate to sustain the expansion.”
Powell didn’t explicitly say what the Fed would do. But expectations are rising that the Fed will cut rates at least once and possibly two or more times before year’s end, in part because of the consequences of the trade war. There is concern that the U.S. expansion, which next month will become the longest on record, could face growing risks of a recession as retaliatory tariffs weaken U.S. exports. — WASHINGTON (AP))
Hamilton: I do not expect the Fed to cut interest rates until we see some concrete evidence of deterioration in economic fundamentals or the trade situation. Some analysts are expecting that could happen relatively soon, though personally I don’t see the evidence of it happening just yet.
Until the data worsen, I think U.S. rates will stay where they are. As long as the European Central Bank sticks with its negative interest rate policy, the dollar will remain an attractive currency for international investors.
JRJ: China is also experiencing a slowdown in economic growth. The Chinese government is trying to solve this problem by deleveraging its capacity and boosting domestic demand. In your opinion, is this the right way? How should the development of the world’s first and second largest economies be reconciled?
Hamilton: There is no question that China needs to make a transition to a slower growth path. With no more growth of its working-age population, and without more growth in the economies to which China sells its goods, China’s historical growth rates can not continue. I think China is very wise to be looking for ways to transition from an export-led economy to an economy that is more self-sufficient.My personal hope is that the U.S. and China will find ways to work constructively together. We have significant interests in common. When one economy is weak, it hurts the other.