Economic Policies in Tumultuous Times

Nowadays, people are more likely to distrust the government's economic policy when the domestic economy goes down without any rebound. From a private perspective, a large-scale expansionary fiscal policy would have two sides to consider.

If these fiscal policies are able to prescribe the right medicine for the exact symptoms, that would be good news for the market. For example, China's Ministry of Finance announced yesterday evening, August 28, 2023, that they would halve the stamp duty on securities transactions. You can see the effects in today's capital markets. Nearly all stock indexes related to China have risen by over 5% at the beginning of the market opening. Although these gains were reversed throughout the day, there is still a significant increase in one day's trading. This could be a successful example of government policy stimulating confidence in the capital market, although the level of stimulation is still not sufficient. The precision of the stimulation and the level of these economic policies both play a big role when people face a crisis.

Last Friday, the Jackson Hole Economic Symposium marked the 46th year of this annual forum. Jerome H. Powell reviewed the progress of the Fed's interest rate hikes and how they have been combating inflation since 2022. The Federal Reserve's interest rate resolution showed 11 consecutive rate hikes over the past year, bringing the final rate to a temporary peak of 5.5 percent. This alarming rate of rate hikes is unprecedented. Although there were a few surprises in between, such as the Silicon Valley Bank crash and some problems with Credit Suisse, the Fed did not stop raising interest rates after a brief discussion, which underscored their determination to control inflation. The progress of inflation turning down is inextricably tied to these actions. Just like what he said at that time, as is often the case, they are navigating by the stars under a cloudy sky. Apparently, they are doing very well in such a complicated circumstance.

On the other hand, there are also many negative examples of government interference in the daily routine of market economics. Turkey's Erdogan chose to cut rates despite high inflation. The ECB's fear of recession in the early stages of inflation led to a consistently high level of inflation. These are government measures that do not benefit the domestic economy. These ineffective measures breed distrust in government policies.

In conclusion, despite the fact that there are many counterfactuals where the government's invalid policies led to an economic crisis, we should keep an eye on government measures. I believe that regulation will make them better and better.