On the 3rd local time, the Federal Reserve opened a two-day interest rate meeting.

Before the quiet period, a number of officials intensively set the tone for the meeting. The market generally expected that a 50 basis point interest rate hike was a certainty. This would be the first 50 basis point interest rate hike by the Fed since 2000.

Investors pay attention to the process of shrinking the balance sheet

　　Tony Sycamore, a senior analyst at Jiasheng Group, told the First Financial Reporter that the 50 basis point interest rate hike has been included in the market. It is expected that the interest rate decision itself is unlikely to affect the market, and investors are more concerned about the specific wording of the policy statement. And whether there is any fine-tuning of Fed Chairman Powell's speech at the press conference, in order to judge the Fed's future interest rate hike.

　　In addition, the market also expects that the Fed will soon start to reduce debt, shrinking its balance sheet by $9 trillion at a pace of $95 billion a month.

Sikmer said the rate of reduction is nearly double the rate of the last round of quantitative tightening in 2017, and he expects the reduction will likely be implemented in phases over the next three months or so, with the first phase starting this month, when The Fed will reduce its bond purchases by $50 billion.

Recession is almost inevitable

　　Investors worry that overly aggressive monetary tightening will tip the U.S. economy into a recession, and two consecutive quarters of negative GDP (gross domestic product) growth are generally considered a recession.

In fact, the U.S. Department of Commerce released the latest data on April 28. The initial value of U.S. GDP in the first quarter fell by 1.4% at an annual rate, far lower than the previous market forecast of a 1% increase. This is also since the second quarter of 2020. So far, the US GDP has fallen into negative growth for the first time.

Despite rising recession expectations, traders appear to be convinced the Fed will stick to a "front-loading" strategy.

As of press time, the CME FedWatch Tool shows that after raising interest rates by 50 basis points in May, the possibility of raising interest rates by 75 basis points to a range of 1.5% to 1.75% in June is more than 90%. It is expected to be around 3%.

Sikmer expects Powell will likely at the meeting to downplay the importance of the economic contraction in the first quarter, instead emphasizing strong growth in consumer spending and investment, thereby rationalizing the accelerated tightening of monetary policy.

Some analysts believe that the Fed's choice to actively raise interest rates when economic growth is slowing may be wrong. Sikmo said that it is necessary to pay attention to the risk of policy mistakes when entering the second half of the year.

　　He also said that the pressure of rising prices mainly comes from supply bottlenecks, soaring oil prices and other areas where the Fed cannot directly exert influence through monetary policy.

Former Fed Vice Chairman Roger Ferguson also expressed a similar view on the 2nd

, "The challenge for the Fed to combat soaring inflation is huge. However, the tools are limited and cannot control the supply side, but can only suppress the demand side." He warned in an interview with foreign media. At this stage, recession is almost inevitable.

At the same time as the global economy is slowing down sharply, major central banks in the world such as the United States and the United Kingdom raise interest rates at this time, which is a very difficult situation.

He predicts that a recession could come in 2023, which he hopes will be a milder one.

　　In addition to Ferguson, former New York Fed President Bill Dudley (Bill Dudley) and former Fed official Quarles (Randal Quarles) believe that the Fed is difficult to achieve a soft landing.

Dudley said the Fed was unlikely to control inflation without triggering a recession, saying the central bank was already in a recession when it realized it was overreacting.

U.S. stocks remain volatile

　　In the past April, U.S. stocks recorded their largest monthly decline since the 2008 financial crisis. However, Wall Street generally believes that the bear market is not over, and U.S. stocks will continue to fluctuate in the future.

　　Citibank chief U.S. economist Andrew Hollenhorst (Andrew Hollenhorst) said that recent economic data shows that the cost of everything from food to energy is still rising, and the labor market is tight. Companies are also facing the problem of rising wages. The issue has put inflation at the top of the Fed's agenda, and the central bank's response could bring more volatility to the stock market.

　　Billionaire hedge fund manager Paul Tudor Jones said that in the past, the Federal Reserve only implemented monetary policy during economic slowdowns and financial crises, so now investors face a whole new situation. In challenging market conditions, investors should prioritize capital preservation.

Morgan Stanley's chief U.S. equity strategist, Mike Wilson, echoed that pessimism, saying that with inflation stubbornly high and recession risks rising, the S&P 500 will be at least in the short-term as U.S. stocks enter the next phase of a bear market. It fell to 3800 points, and the lowest may fall to 3460 points, that is, there is still a 17% drop space compared to the current one.