Obviously, this meeting has many special meanings for the Fed itself and the global capital market: in the past nine months, the Fed headed by Powell continued to raise interest rates at the fastest rate since the 1980s, which triggered a series of cross-market crashes. At the end of the year, the 65438+February meeting on interest rates is being regarded by many Fed officials and market participants as a potential turning point for the Fed to raise interest rates aggressively.
Before this week's Fed meeting on interest rates, NickTimiraos, a famous journalist known as the "New Fed News Agency", once divided the current tightening cycle of the Fed into three stages, which may be the best interpretation of the current market environment:
The first stage refers to the stage when the Federal Reserve quickly raised interest rates from zero level to fight inflation, which is what investors have seen in the past few months. Last year, Fed officials, led by Powell, generally underestimated the inflationary pressure, which forced them to make up for it this year-in the past four interest rate meetings, they have announced a rate hike of 0.75 percentage points. The last three interest rate hikes have been unanimously supported by members of the Federal Open Market Committee (FOMC).
The second stage is the stage that Fed officials expect to enter tonight-that is, to slow down the rate hike. At the meeting on interest rates at the beginning of last month, the Federal Reserve proposed for the first time that when determining the future target interest rate, the Committee would consider the cumulative effect of monetary policy and the lagging effect of economic activities and inflation, which was also interpreted by the outside world as a signal that the radical policy was coming to an end.
As for the third stage, according to the prediction of most Fed officials, it will occur in the spring or summer of next year-that is, the Fed will keep the interest rate at a certain high level that is still uncertain until the inflation rate falls back to the target level of 2%.
After reading the division of these three stages, you may understand the significance of this week's Fed meeting on interest rates: tonight's meeting on interest rates will not only be a key transition between the first and second stages, but also reveal how long the second stage of this interest rate hike cycle will last, how high the peak interest rate will rise, and whether the Fed really intends to maintain its long-term commitment to the third stage, thus extinguishing the rising interest rate cut expectation next year.
Therefore, in view of the Federal Reserve's year-end interest rate discussion drama tonight, Cailian listed the following core views for investors' reference before this major risk event that may detonate the global market:
Aspect 1: The pace of the Fed's interest rate hike will "slow down" tonight.
How much the Fed will raise interest rates tonight is actually the least suspenseful part of this interest rate discussion night. According to Shang Zhi's latest Fed observation tool, the probability of the Fed raising interest rates by 50 basis points to 4.25%-4.50% at the meeting in June 5438+February is 79.4%, while the probability of raising interest rates by 75 basis points is only 20.6%.
The earliest signal that the Fed will "slow down" the rate hike this month was actually in the monetary policy statement last month. In his last speech before the silent period of this month's meeting on interest rates, Federal Reserve Chairman Bauer also reiterated that since the Fed has raised interest rates quickly, and these measures need time to have an impact on the economy, officials believe that it will be feasible to slow down the pace of interest rate hikes.
Powell said in a speech at the Brookings Institution that "the earliest time to slow down the pace of interest rate hike may come at the meeting in June+February, 5438."
For tonight's interest rate decision, BorisSchlossberg, macro strategist of asset management agency BKAssetManagement, pointed out that from the current situation, the Fed is moving along the route set at the meeting of 1 1. He believes that this will not happen like the unexpected decision to raise interest rates by 75 basis points in June.
Cao Yubo, a researcher in the financial market department of China Construction Bank, also pointed out in an interview with this newspaper this week that it is generally expected that the meeting will raise interest rates by 50 basis points, which is the result of continuous communication between the Federal Reserve and the market. Since the meeting of 5438+065438+ 10 in June, many Fed officials, including Federal Reserve Chairman Powell, said on different occasions that they would consider slowing down the pace of interest rate hikes. This is mainly because inflationary pressure has dropped from a high level, commodity prices and housing rents have declined to varying degrees, and the expectation of economic recession is constantly strengthening.
It is worth mentioning that once the Federal Reserve slows down the rate hike this month to 50 basis points tonight, it will mean the complete end of the "ultra-high-speed" austerity stage of raising interest rates by 75 basis points for four consecutive meetings. Since the first rate hike of 25 basis points in March this year, the Federal Reserve has raised interest rates by 375 basis points, and the benchmark interest rate has climbed to the fastest level since the Volcker era in the early 1980s.
Aspect 2: How will the Federal Reserve raise interest rates in February next year?
Since the Fed is likely to slow down the rate hike to 50 basis points this month, new suspense will undoubtedly arise: Will the Fed continue to "step on the brakes" next time-how much will the Fed raise interest rates at the next Fed interest rate meeting, that is, the interest rate meeting in early February next year?
The first interest rate meeting next year will be held at 1/3 1-2/ 1 local time. After the afternoon meeting of February 1, the Federal Reserve will issue a meeting statement, and Powell will hold a press conference as usual.
Speculation in this regard has actually been completely ignited after the US released the lower-than-expected CPI data 1 1 last night.
As can be seen from the pricing of interest rate swaps, after the CPI data was released last night, the market's expectation that the Fed will raise interest rates by 50 basis points tonight has hardly changed, but the bet that the interest rate hike will further slow down to 25 basis points in February next year has surged: the probability that the Fed will raise interest rates by 50 basis points or more at the meeting in February next year is only about 30%.
AnetaMarkowska, chief financial economist of Jefferies in new york, said, "I originally expected the Fed to raise interest rates by 50 basis points again in February, but now it seems that dove officials will vigorously push for a 25 basis point rate hike. After the CPI data is released, they will definitely have stronger reasons. "
BrettRyan, a senior American economist at Deutsche Bank, also pointed out that "today's CPI data makes it easier for the Fed to cut the interest rate hike to 25 basis points at the February meeting, but it may not affect the Fed's assessment of the overall inflation environment. The relaxation of financial conditions runs counter to their goal of achieving a balance between supply and demand. "
In tonight's interest rate decision, on the one hand, investors can continue to look for clues about interest rate guidance at the next meeting from the Federal Reserve's monetary statement, on the other hand, they need to pay close attention to the press conference after the meeting of Federal Reserve Chairman Powell, who is likely to be asked about the extent of the next interest rate hike.
Aspect 3: What will be the peak of this interest rate hike cycle?
Since the second half of this year, speculation about the peak interest rate of the Fed's current tightening cycle has hardly stopped. And this will obviously be a highlight of the Fed's resolution tonight.
In his last speech before the silent period of this meeting, Federal Reserve Powell said, "In view of the progress we have made in tightening policies, it is more important to think about how much interest rates will rise and how long it will take to keep them at a restrictive level to curb inflation than to slow down the pace of interest rate hikes."
On the forecast of the peak interest rate, Powell said at that time that the highest interest rate might be "a little higher" than the official's forecast in September, while the median bitmap forecast of Fed officials in September was that the interest rate would be as high as 4.6% next year.
At present, in the market, Goldman Sachs is one of the investment banks with the highest forecast for the peak interest rate of the Federal Reserve next year. JanHatzius, chief economist of Goldman Sachs, recently said that investors should be prepared, and the Federal Reserve will let interest rates continue to climb before May 2023, but did not disclose any signs of a policy turning point. He predicted that the Fed will raise interest rates by 25 basis points in February, March and May next year, which indicates that the terminal interest rate will reach 5.0%-5.25%, and then the interest rate will remain unchanged until 2024.
In addition to Goldman Sachs, Deutsche Bank, Wells Fargo and Barclays Bank also recently predicted that the Federal Reserve would raise the peak interest rate to more than 5%. However, it should be pointed out that the forecasts of these investment banks were released before the release of CPI data on Tuesday, so they will be slightly outdated.
As far as the latest pricing of the interest rate swap market is concerned, Tuesday's CPI data has prompted interest rate swap traders to predict that the policy interest rate will reach the peak of 4.83% next year, which is lower than about 4.99% before the release, which means that the Fed will only raise interest rates twice at most next year, with 25 basis points each time.
Aspect 4: Will the Fed dispel the market's expectation of cutting interest rates next year?
In the introduction of the peak interest rate of the Federal Reserve next year, we did not specifically mention the interest rate bitmap of 65,438+February, which may be the most striking in the market tonight, because we think it may be necessary to introduce this aspect separately to prevent investors from falling into a misunderstanding when reading tonight's resolution.
In some recent institutional forecasts, the interest rate forecast at the end of 2023 in the Fed's bitmap is basically equivalent to the peak interest rate next year. But in fact, these are completely two concepts. In the interest rate map of September this year, the median interest rate forecast of Fed officials at the end of next year is 4.6%. At that time and even now, it can be regarded as the peak interest rate of this interest rate hike cycle, in fact, based on the premise that the Federal Reserve will not cut interest rates next year.
However, the pricing of the current interest rate market is actually very interesting: traders predict that by 65438+February 2023, the Federal Reserve will cut its benchmark interest rate to about 4.35%-equivalent to cutting interest rates by about 50 basis points in the second half of 2023 after raising interest rates to a peak of about 4.83% in the first half of next year!
What does this mean? This means that even if the Fed does not raise its interest rate forecast at the end of next year from the previous 4.6%, it will be more hawkish than the current market pricing, as shown in the following figure.
This is actually a "terrible" thing-because the "gap" between interest rate pricing in the market and the Fed's position is really too big. In fact, at present, including Fed officials and major investment banks, it is basically expected that the interest rate forecast for next year in the interest rate bitmap tonight will move up further, which will only further widen the gap between the bitmap and the market forecast!
Many Fed officials in the austerity camp have long been worried that if the Fed starts to cut interest rates prematurely, it may repeat the mistakes of the stop-and-go austerity policy in the 1970s. This has also led to the fact that so far, almost no Fed officials have clearly released a signal to support interest rate cuts next year. The reason why the market constantly violates the Fed's "will" and thinks that it will cut interest rates in the second half of next year is to bet on the prospect that the United States will fall into recession with a high probability next year, which may force the Fed to turn.
Tonight, this may be the most important game point between the Fed and market expectations: either the Fed compromises the market's interest rate cut expectations, or it may ruin the hope of the market interest rate cut faction, and only one of the two types of expectations will be "alive"!
Aspect ⑤: How does Powell view the trend of inflation peaking?
The Federal Reserve has always regarded price as the focus of monetary policy this year, because long-term high inflation is more harmful to the economy and the labor market. At this meeting, the Fed will also update the Economic Forecast Summary (SEP), including the latest outlook on economy, inflation and employment. In view of the fact that the US CPI data in June 165438+ 10 released last night just fell back more than expected, it is obvious that Federal Reserve Chairman Powell's views on the future inflation trend will receive much attention tonight.
According to the report of the US Department of Labor on Tuesday, the overall CPI rose by 0. 1% month-on-month and 7. 1% year-on-year, setting a new low for the year, as the falling energy prices helped offset the impact of rising food prices. The consumer price index (CPI) excluding food and energy rose by 0.2% month-on-month and 6% year-on-year.
This is the last CPI report in 2022. Although the inflation in the United States is still too high from the data point of view, the price increase has slowed down obviously. At present, the year-on-year increase of CPI in the United States has dropped for five consecutive months. OmairSharif, the founder of InflationInsightsLLC, said in a report that this is obviously not an abnormal value. In fact, Tuesday's report shows that the price growth rate in the United States has generally slowed down.
Of course, as far as the trend of inflation itself is concerned, because economists generally expect that the inflation of core commodities will continue to slow down next year, the house price index will eventually turn, and people's attention has increasingly turned to core services to judge the path of overall price pressure. In his speech earlier this month, Federal Reserve Chairman Paul also specifically mentioned that the core service area of housing was excluded from the inflation data, saying that it "may be the most important category to understand the evolution of core inflation in the future". Last night, the inflation in the core service area of CPI was actually in a relatively high field.
Therefore, whether Powell's attitude towards last night's inflation data will show a more positive side, or whether he still thinks that the road to inflation cooling has a long way to go, will also indirectly express his position on the future.
MatthewLuzzetti, chief American economist at Deutsche Bank, said, "We can still see many signs of falling inflation, but the question is whether this will bring the inflation rate back to 3%. How can we reduce it from 3% to 2%? This is what I think is the more difficult part. "
Historically, the Fed's tightening cycle has always raised interest rates until they are higher than CPI. At present, the Fed is getting closer and closer to this goal, but it is still difficult to achieve it in the next few months!
Aspect 6: Will the economic recession come next year?
In the interpretation of the last quarterly interest rate meeting in September this year, we mentioned the most important figure at that time-4.4%. This figure was mainly mentioned in two places at that time. One is the Federal Reserve's interest rate forecast at the end of this year (realized after raising interest rates by 50 basis points tonight); The other is an estimate of the unemployment rate at the end of next year. At that time, we thought that the sharp rise in the unemployment rate forecast would show that the Fed had expected that the job market would face a major blow and the economy might face the risk of recession.
According to the latest market pricing, Federal Reserve officials will raise the unemployment rate forecast for 2023 for the third time in a row tonight, because their actions to combat inflation are increasingly likely to plunge the US economy into recession.
Economists surveyed by the media expect that the unemployment rate will rise to 4.6% by the end of 2023 in the quarterly forecast released by Fed officials on Wednesday. This may mean that 6.5438+0.5 million Americans will lose their jobs than they do now. Never before has the unemployment rate risen like this, but the American economy has not fallen into recession.
Most private forecasters predict that the United States will fall into recession next year. Even economists at the Federal Reserve warned in the minutes of last month's meeting on interest rates that the possibility of such an outcome was about 50%.
The minutes of the Federal Reserve's June 1 1 meeting once said, "The sluggish growth of domestic private sector real expenditure, the deterioration of global prospects and the tightening of financial conditions are all considered to pose outstanding downside risks to the prediction of actual economic activities; In addition, the possibility that inflation continues to decline or financial conditions need to be tightened to a higher level than expected is also regarded as a downside risk. " .
JuliaCoronado, president of Macro Policies in Austin, Texas, pointed out, "If you are the Federal Reserve, you will want to convey a commitment to take necessary actions to solve the inflation problem. At present, the focus is still on reducing inflation. One of the links is at least a more balanced labor market, and it may even directly increase unemployment. "
There is no doubt that at the press conference after tonight's meeting, Federal Reserve Chairman Powell may also be asked his views on the prospect of economic recession next year. Investors can pay close attention to this.
abstract
On the whole, although the favorable CPI data released last night further amplified the dawn of the peak of inflation in the United States, it is still unknown whether this really indicates that the Fed will completely turn to doves at the interest rate meeting one day later.
What investors need to be careful about tonight is the Fed's attitude towards the direction of monetary policy next year, especially whether it will hit the market's bet on interest rate cuts in the second half of next year.
BrentDonnelly, president of SpectraMarkets, said, "Tuesday's CPI data clearly shows the downward trend of inflation in the United States, but the Fed may be more concerned about where the lowest inflation can go. Therefore, although the trend is gratifying, the Fed will not want to repeat the mistakes of the 1970 s. They dare not remove their feet from the brake discs prematurely. "
The China Gold Research Institute believes that it is expected that the Fed will still raise interest rates by 50 basis points at the interest rate meeting in June 5438+February, but it is still too early to discuss interest rate cuts.
According to the report, the market has basically priced the Fed's slowdown in raising interest rates. Next, we need to pay attention to the final height of the Fed's interest rate hike and the length of time that interest rates stay at a high level. If inflation in the service industry is difficult to fall back quickly and interest rates in the United States remain high, then the US economy will still face downward pressure. If inflation cannot be solved before the economic downturn or even recession, it will still be bad for risky assets.