(Financial World) Super-expected release of hawkish signals, Fed's interest rate meeting revealed four major changes

  China News Agency, Beijing, June 17 (Reporter Xia Bin) The Fed's June interest rate meeting, which is of global concern, has released a lot of signals.

In the early morning of the 17th, Beijing time, the Federal Reserve announced that it would maintain the target range of the federal funds rate unchanged at 0-0.25%, which was in line with market expectations. However, the Fed also exceeded market expectations and released a hawkish signal. The aforementioned meeting revealed four key changes. .

  First, both major interest rates have been raised.

Although the federal funds rate has not changed, the Fed raised the reverse repo rate and the excess reserve rate (IOER) by 5 basis points to 0.05% and 0.15% from the previous 0% and 0.1%, respectively.

  Li Chao, chief economist of Zheshang Securities, said that the above operation is mainly a technical adjustment to maintain the stability of the reverse repo market under the background of the current flood of liquidity, which is different from raising interest rates.

Fed Chairman Powell also pointed out at the press conference that this adjustment has nothing to do with monetary policy stance, and interest rate hikes are still far away.

  Cheng Shi, chief economist of ICBC International, believes that the Federal Reserve has begun preparations for monetary tightening. While maintaining the benchmark interest rate unchanged, it raised the excess reserve interest rate and the overnight reverse repurchase interest rate to hedge against the previous fiscal and monetary policy loosening. The barrier lake effect formed in the currency market.

  Second, expectations for interest rate hikes have changed.

According to the dot plot released at the meeting, the Fed’s expectations for subsequent policy interest rates have generally risen.

Specifically, the dot plot is expected to show that the median federal funds rate will remain at 0.1% from 2021 to 2022, but the median value in 2023 will be 0.6%, which means there is room for two interest rate hikes. The dot plot is expected to not raise interest rates until the end of 2023.

  However, Powell told reporters that it is too early to discuss interest rate hikes, and that interest rate hikes will take place for a long time.

  Cheng Shi pointed out that the Fed has formed a consensus on tightening, and the differences are only the timing, not the direction. The dot-map forecast implies the possibility of raising interest rates twice (25 basis points each time) in 2023.

  Huang Ka-shing, managing director of Invesco and head of fixed income in the Asia-Pacific region, believes that the Fed has clearly denied the market's attempts to re-anticipate its interest rate hike route.

The Fed’s response, as well as similar messages from the European Central Bank, the Reserve Bank of Australia, and the Bank of Canada, made it clear that monetary policy will remain exceptionally loose for the foreseeable future.

  Third, raise economic and inflation expectations.

In this meeting, the Federal Reserve raised the real GDP growth rate in 2021 from 6.5% in March to 7.0%; the core PCE in 2021 was raised from 2.2% in March to 3.0%, and the growth rate in 2022 was increased from 2.0%. Increased to 2.1%.

  "Inflation may continue to stay high in the next few months, and then it will ease." Powell said that inflationary pressures are temporary, but inflation may be higher and more lasting than expected, and the upward risk of inflation It is still one of the factors considered by the Fed.

  Li Chao said that behind the above adjustments, on the one hand, the Fed recognizes that short-term inflation does have greater pressure, on the other hand, it still insists that inflation is temporary pressure. During the year, the high inflation pressure in the United States will begin to weaken and the supply and demand gap will ease. .

  Fourth, show a hawkish attitude beyond expectations.

"If the progress is maintained at the current state, plans to reduce the scale of QE (quantitative easing) will be considered at the next meeting." Powell revealed such a sentence.

Although the current Fed's bond purchases remain unchanged, it has also sent a hawkish signal to the market that exceeds expectations, and specifically mentioned that it will be notified in advance before the implementation of the reduction of the QE scale.

  Li Chao believes that Powell has clearly begun to vaccinate the QE reduction plan at this meeting, and claimed that this meeting can be regarded as a "quantitative easing discussion" meeting.

  Cheng Shi pointed out that under the benchmark scenario, the scale of debt reduction will start in the fourth quarter of 2021, and the balance sheet reduction and interest rate hike will occur in 2022.

From the perspective of forward-looking guidance, the Fed has adopted a more benign situation to avoid policy changes that cause greater market fluctuations and changes in economic expectations.

  "It is worth noting that although the Fed's policy changes are a gradual process, the frequency of changes may gradually accelerate, and the intensity of changes may gradually increase. Under the new supply shock, the Fed's actions will be more than words. Resolute and efficient." Cheng Shi said.

  Huang Jiacheng said bluntly that the Fed or any other central bank is unlikely to change its position easily.

The major central banks in developed markets have become more "passive," and may need to see substantially higher and self-sustaining inflation, especially inflation brought about by wage growth, to tighten the financial environment.