The Fed Taper landed, when will the interest rate hike come?

(Economic Observation) The Fed's Taper landed, when will the interest rate hike come?

　　China News Agency, Beijing, November 4 (Reporter Xia Bin) The Fed's latest interest rate meeting stated that it will maintain the target range of the federal funds rate between 0 and 0.25%, and will start to reduce asset purchases this month ( (Hereinafter referred to as "Taper") plan to reduce the scale by a total of 15 billion US dollars, and said that it may be appropriate to maintain a similar decline every month, but if the economic outlook changes, it is also ready to adjust the pace of purchases.

　　Judging from the reduction of 15 billion US dollars per month, this means that this round of the Taper plan may be completely ended in June 2022.

　　What is the impact of Taper's landing?

The deputy director of the CITIC Securities Research Institute clearly believes that because the Fed has fully communicated with the market before this Taper, the expected timing and pace of Taper may have relatively limited impact on the market.

　　Duan Xiaole, a senior macro analyst at Sinolink Securities, said that the Fed’s implementation of the Taper’s boot landing effect has led to a rebound in short-term risk appetite and boosted the rise in US stocks after the interest rate meeting.

However, with the increasing pressure of marginal contraction of liquidity and the decline in corporate earnings expectations brought about by the US economic slowdown, the pressure on the overall downward adjustment of US stocks will gradually increase.

Despite the short-term recovery of U.S. Treasury yields, the market’s expectations of non-U.S. currency contractions have increased, leading to a fall in the U.S. dollar index after the interest rate meeting.

　　He also pointed out that whether from the perspective of economic fundamentals or the spillover effect of the Fed, China’s current monetary policy is not under pressure to tighten passively. Instead, as the “inflation” factor in the stagflation environment subsides, “stagnation” The demand for monetary easing is getting higher and higher.

　　What is the state of the U.S. economy?

The Federal Reserve statement stated that the economic development path continues to depend on the direction of the virus.

The progress of vaccination and the alleviation of supply constraints are expected to support the continued growth of economic activity and employment, and inflation will decline accordingly.

Risks to the economic outlook still exist.

　　Cheng Shi, chief economist of ICBC International, believes that the Fed has not actually fulfilled the so-called inflation target or full employment.

The dual goal is in vain. The Fed appears to have been imprudent in the macro changes, and it has taken lightly the long-term impact of the new crown epidemic and new supply shocks.

　　Observing the recent fundamental situation in the United States, under the influence of the rebound of the epidemic caused by the Delta mutant strain, the GDP in the third quarter increased by 2% at an annual rate, which was far less than the 6.7% in the second quarter, and inflation continued to rise. In September, the PPI hit another record. With new highs, CPI climbed again, while consumer confidence remained down.

　　Cheng Shi bluntly stated that the Fed has significant misjudgments in the three dimensions of economic fundamentals, persistence of inflation, and labor markets. Such misjudgments are dangerous for both the U.S. economy and the global market and require more careful prediction of the Fed’s Policy path, and make full ideological and work preparations for future-than-expected policy changes and market fluctuations.

　　When will interest rate hike be on the agenda?

Fed Chairman Powell said that the beginning of Taper does not mean sending a signal to raise interest rates. The Fed "can be patient" in terms of the timing of interest rate hikes. It is not a good time to raise interest rates at this time.

　　"Powell deliberately avoided the topic of interest rate hikes at this meeting, implying that it is inappropriate to talk about interest rate hikes. This is also in line with our previous judgment that the Fed intends to cut the link between Taper and interest rate hikes." Cheng Shi said.

　　But the focus of the market has turned to the forecast of interest rate hikes.

Although with inflation soaring, the market expects the Fed to raise interest rates more and more forward, according to the 5-year break-even inflation rate and the latest University of Michigan inflation expectations, current U.S. inflation expectations are already at a nearly 10-year high, and according to Chicago Commodities Exchange FedWatch tool, the current market for the Fed's first interest rate hike expectations have been advanced to June 2022.

　　Tao Chuan, chief macro analyst at Soochow Securities, believes that the external monetary policy environment may become an important catalyst for the Fed to raise interest rates.

Since 2021, under the pressure of inflation, some emerging market economies and advanced economies have begun to raise interest rates, and the United States has fallen behind in the global interest rate hike wave.

　　"This is obviously different from the past. Take 2015 as an example. At that time, emerging market economies and non-US developed economies were still in the interest rate cut cycle. The'retrograde' Fed rate hike was slow and difficult. This time we probably should not underestimate it. The Fed's determination and probability of raising interest rates in 2022." Tao Chuan said.

(over)