(Financial World) Three major signals behind the Fed’s “not in a hurry” interest rate hike
China News Service, Beijing, March 18, report: Three major signals behind the Fed’s “no hurry” rate hike
China News Agency reporter Xia Bin
The global market is finally waiting for the outcome of the Fed's March meeting on interest rates and the statement of Chairman Powell.
In the early morning of the 18th, Beijing time, the Federal Reserve announced that it would maintain the target range of the federal funds rate unchanged at 0-0.25%, releasing three major signals behind the "no hurry" expectation of raising interest rates, and having an impact on the prices of various assets .
——Need to raise interest rates in advance? May not change until 2023
Since the beginning of this year, driven by factors such as accelerated vaccination and sustained economic recovery, expectations for a rebound in U.S. inflation have increased. The market believes that the Fed’s tightening of liquidity may be ahead of schedule, but the dot plot announced at this meeting has been extinguished. The market's expectations for interest rate hikes.
"The Fed still does not need to rush to tighten monetary policy." Thomas Costerg, senior American economist at Baida Wealth Management in Switzerland, believes that the Fed may send a message that the first rate hike is expected to be advanced to the fourth quarter of 2023, but this is better than the current market. It is expected that there is still a one-year lag, and there is still a big gap between the two.
From the current point of view, the dot plot revealing the path of future interest rate hikes shows that most committee members believe that interest rates close to zero will continue until 2023.
However, compared with December last year, the number of committee members who believe that interest rates need to be raised in 2022 and 2023 has increased.
Nevertheless, Powell emphasized that "this is only a minority view."
Most committee members do not think that there will be an interest rate hike within this expected period (that is, before 2023), and it is not time to talk about reducing the scale of debt purchases.
——What to do with the soaring U.S. debt? The monetary policy is appropriate and there is no reason to stop
Previously, due to the simultaneous increase in market expectations for inflation and interest rate hikes, the U.S. Treasury yields rose rapidly, the U.S. dollar index rebounded, and global stock markets including U.S. stocks also adjusted accordingly.
Powell is clearly "seemingly" about the upward trend of U.S. bond interest rates.
He bluntly stated that the current monetary policy is appropriate and there is no reason to prevent the continuous surge in U.S. bond yields in the past month.
Powell hinted that unless financial conditions deteriorate significantly and asset prices are adjusted disorderly, the Fed will not intervene in the U.S. bond market.
Bian Quanshui, chief macro analyst at China Securities, said that the Fed’s relatively dovish statement dispelled market expectations that the Fed will withdraw from the stimulus policy early. The short-term upward pressure on U.S. long-term bond yields and real interest rates has slowed.
——Can inflation be tolerated? Not afraid of pressure or affecting policy
The meeting showed that the Fed raised its expectations for GDP growth and PCE inflation this year.
The above changes indicate that the Fed is more optimistic about US economic growth expectations, but its view on inflation remains at a "temporary" level and is not afraid of short-term inflationary pressures.
"Unsustainable high inflation will not affect Fed policy." Xie Yaxuan, chief macro analyst at China Merchants Securities, said that although the market is worried about this round of inflation or reaching historical highs, the Fed also indicated that as the economy continues to recover and spending quickly rebounds, it may look To the pressure of price increases, but these one-time price increase factors will only have a short-term impact on inflation.
Thomas Costerg believes that the Fed’s “new” strategy has increased tolerance for higher inflation, partly because it weighs other considerations, such as increasing social cohesion and limiting inequality.
For example, the minority unemployment rate has recently become the focus of the Fed's attention.
What impact will the Fed's resolution have on various assets?
Li Huiyong, deputy general manager of Huabao Fund, said that regardless of valuation factors, the environment in the U.S. stock market is generally similar to China’s overall friendly situation in the second half of 2020. The economy and inflation expectations have been raised, but there is still a gap between overheating and interest rates. Rise, but overall it is still loose. This kind of "honeymoon period" combination is very beneficial to the equity market.
At the same time, as real interest rates are expected to rise and the U.S. dollar index declines slightly, gold prices will receive short-term support, and the prices of commodities such as copper and crude oil will also receive short-term financial support.
Bian Quanshui pointed out that from an emotional point of view, the slight fall in U.S. bond yields and the short-term rebound in the price of risky assets can provide a short-term boost to China's domestic risk appetite.
"But on the whole, the Fed's overall policy tends to be in line with market expectations, with little change and limited impact on my country's asset market."