The following points of view are provided by our analysts Patanjali Tamhanaka, Baruch Shapiro, Millie Konold and edit by Randi Greenwood.

The information provided is for reference only. It does not constitute an invitation, offer or recommendation or any solicitation of an offer to acquire, purchase or subscribe for any securities.

The content structure of this report follows the Reporting Principles of Medio Research (RPMR), which is to directly present arguments and conclusions to improve reading efficiency.

On March 16, 2022, the FederalReserve announced that it would raise the federal funds rate by 25 basis points, starting the first rate hike since December 2018 in response to the continued upward inflationary pressure. What is the pressure of this round of ventilation in the United States? How aggressive is the Fed's narrowing policy? How will it affect the world economy? To answer the above question, you must
pass the cycle of the United States to you to consider the degree of tension in the Fed's monetary policy.

The aggressive macro policy of the United States is animportant driver of this round of inflation.

First, the Federal Reserve revised its monetary policy framework to allow for "overshooting" of inflation in the US economy. From January 2012 when the Federal Reserve first released the "Statement on Long-term Objectives
and Monetary Policy Strategy" to August 2020 when the Federal Reserve announced its new monetary policy framework - "Statement on Long-term Objectives and Monetary Policy Strategy", the Fed's monetary policy objectives are In addition to continuing to emphasize that maximum employmentis a broad-based and inclusive goal, change the inflation target to a new goal that seeks to achieve an average long-term inflation rate of 2%, explicitly acknowledging that a persistently low interest rate environment will pose challenges for monetary policy, to be adopted Increase inflation to increase interest rates, thereby creating room for monetary policy normalization and getting rid of policy asymmetry risks caused by the real lower limit of interest rates. On April 14, 2021, Clarida, then vice chairman of the Federal
Reserve, explained the new framework of the Federal Reserve's monetary policy and price stability, and believed that "once the conditions for policy normalization are met, the policy will gradually restore the inflation rate to the long-term target." , that is, kept at 2%, but not lower than 2%.

It can be considered that there is at least one period when inflation continues to exceed 2%, and the Fed will not reversely compensate for the period of high inflation by pushing the inflation rate below the target level. The new framework of the Fed's monetary policy allows inflation to "overshoot", making the Fed change from a controller of inflation to a producer of inflation. The Fed is trying to use inflation as a starting point to break the "Great Stagnation" cycle of low inflation and low growth since the subprime mortgage crisis. Allowing inflation to be significantly "overshooted" in stages has become the "label" of this Fed's monetary policy.

The unexpected impact of supply has made the inflation trend exceed the Fed's expectations to a certain extent. Natural disasters, repeated COVID-19 epidemics, green energy transformation, geopolitical conflicts and other factors have combined to cause the intensity and duration of supply shocks to exceed expectations. Due to reduced production capacity and transportation difficulties
caused by the epidemic, there are obvious bottlenecks in the global supply chain. Due to the impact of natural disasters such as extreme weather and the impact of the epidemic, global agricultural product prices have risen sharply.

In addition, affected by factors such as economic recovery, abundant liquidity, green transformation, and geopolitical conflicts, energy prices have skyrocketed, and the prices of ICE cloth oil and WTI crude oil once exceeded $120/barrel. The impact of the epidemic has led to a reduction in production capacity and superimposed green transformation, which has also promoted the rise in metal prices, and the prices of metals such as copper have also risen significantly. The outbreak of the Ukraine crisis has further aggravated the risks in the global energy market and agricultural product market, and further pushed up the prices of bulk commodities in the international market.

Impact: aggravate the Europeaneconomic recession, beware of the recurrence of the European debt crisis.

The United States is stagflation,Europe is in recession. This is the scene of the three major regions of the world economy.

We have three judgments on thefuture world economy: the first judgment is that a full-scale economic and financial crisis may break out in Europe, beware of the recurrence of the European debt crisis, and some emerging market countries may also be doomed; the second judgment is that the global economy is opening a new era. A round of deep recession, the U.S. economy will not be spared alone; the third major judgment, if a scientific response is made, the Chinese economy is expected to lead the world again. Real estate soft landing, etc.

Commodity prices have not weakened rapidly. Againstthe backdrop of continued weakness of non-US currencies, the mid-stream
European manufacturing countries represented by Germany have not only suffered exchange rate losses, but also faced the double impact of extreme contraction in demand and sharp rise in raw material prices. The most intuitive thing is that its trade surplus has narrowed rapidly, and even continued to record negative values. The reason why Europe is more vulnerable than South Korea and
Japan is that it is more dependent on Russian energy and has to "share" systemic financial risks in the EU. As the locomotive of the European economy, the German economy is on the verge of recession, and the core reason is that the Fed’s excessive interest rate hikes have triggered rapid capital outflows from Europe, the economy has cooled rapidly, the manufacturing and industrial sector’s prosperity has declined significantly, and overall European demand is weak.

As far as the European economy isconcerned, when recession is inevitable, we need to beware of the recurrence of the European debt crisis: the overall systemic pressure indicators in the euro zone are close to the level of the European debt crisis and financial crisis,
which can be said to be dark clouds pressing "Europe" to destroy Europe. The way to solve the problem depends on the evolution of the conflict between Russia and Ukraine, but the initiative is no longer on the European side.

How Economies Survive:

Someemerging markets have begun adjusting monetary policy and preparing to scale back fiscal support in response to rising debt and inflation. In response to the tightening of the financing environment, emerging markets should respond appropriately according to their own actual conditions and vulnerabilities. Countries with policy credibility to control inflation can tighten monetary policy more gradually; countries with high inflationary pressures or weak institutions must act quickly and comprehensively. In both cases, the response should include allowing currency depreciation and raising benchmark interest rates. Central banks with sufficient reserves can intervene in the market if disruptions occur in the foreign exchange market, provided that such intervention is not a substitute for necessary macroeconomic adjustments.

The importance of expanding thedomestic consumer market and increasing the employment rate has increased.

The domestic consumer demand boomin emerging economies will also show signs of accelerated decline under the weak overseas economic demand triggered by the Fed's interest rate hike. Taking
China as an example, the PMI new export orders index in October was 47.6%, slightly higher than the previous month by 0.6 percentage points but continued to be in the contraction range. International geopolitical factors, the slowdown of overseas economies, and the obstruction of energy supply chains in some parts of Europe dragged down the continuous decline in external demand. In October, the U.S. Markit manufacturing PMI was 50.4%, a sharp drop of 1.6 percentage points; the euro zone manufacturing PMI was 46.6%, and the German manufacturing PMI was 45.7%, in the contraction range for four consecutive months. From the perspective of overseas exports, South Korea’s exports in the first 20 days of October were -5.5% year-on-year. Various indicators related to external demand show that overseas demand has slowed down sharply recently.

In 2022, China's GDP growth ratein the first, second and third quarters will be 4.8%, 0.4% and 3.9% respectively, and the GDP growth rate in the first three quarters will be 3.0%. From July to September, the economy is bottoming out, mainly driven by high
growth in infrastructure investment and high-end manufacturing investment, sluggish real estate sales and investment, weak consumption, and a significant decline in exports. Since 2020, the advantages of China's industrial chain have been highlighted, and exports have played an important role in supporting GDP. However, since the third quarter, the decline in external demand has significantly dragged down exports.

Hence, we conclude that the bestway for any non-US economy to avoid the impact of US interest rate hikes is to invest heavily in infrastructure, increase employment rates, and promote domestic consumer demand.