The Fed admits that it may slow down interest rate hikes, why can't it be tough?

[Review of the United States] The Fed admits that it may slow down interest rate hikes, why can't it be tough?

　　China News Service, July 29 (Zhongxin Finance and Economics Gong Hongyu) On July 27, local time, the Federal Reserve announced that it would raise the federal funds rate by 75 basis points to a target range of 2.25% to 2.5%, marking its two-month accumulation. The rate hike reached 150 basis points, the largest consecutive rate hike since the early 1980s.

　　However, compared with the previous three interest rate hikes this year, this interest rate meeting has released some different signals of "easing" than before.

For example, Federal Reserve Chairman Jerome Powell acknowledged that the Fed may slow down the pace of interest rate hikes after sharply tightening policy.

　　U.S. stocks rose sharply after the interest rate meeting.

The Dow rose 1.37%; the Nasdaq rose more than 4%; the S&P rose more than 2.6%, closing above 4,000 points for the first time in seven weeks.

Fed Chairman Powell.

Photo by China News Agency reporter Sha Hanting

Fed rate hikes set to become 'moderate'?

　　Powell said at the interest rate meeting that it may be appropriate to continue to raise interest rates in an extraordinary manner in the September meeting, which will depend on the data; in the context of continued tightening of monetary policy, slowing down the pace of interest rate hikes depends on the accumulated How policy adjustments affect the economy and inflation.

　　at this meeting

indicates that the Fed is sending the market a signal of a marginal turn to “dove” (described as a soft and moderate attitude).

　　Not only that, the rate hike of 75 basis points this time is also lower than the forecast of some market institutions that the Fed will aggressively raise interest rates by 100 basis points after U.S. inflation hit a record high of 9.1% in June.

　　In the face of high inflation, why has the aggressive Fed become "moderate"?

　　Many analysts pointed out that multiple rounds of interest rate hikes are bringing recession fears to the crisis-ridden U.S. economy.

As Powell said, the Fed's actions and statements contributed to the slowdown in part.

　　Morgan Stanley CEO James Gorman has previously said that the possibility of a U.S. recession is rising as the Fed becomes more aggressive in fighting inflation, with the risk of a recession as high as 50 percent.

　　When describing the state of the economy, the Fed's statement at this meeting

. "

　　Cui Rong pointed out that U.S. inflation is still running at a high level, and the economy is still far from a substantial recession, but economic growth may have begun to affect the Fed's aggressive stance.

　　Yi Zheng, chief macro economist at Huatai Securities, said that from the perspective of this interest rate meeting, the "recession risk" under the deceleration of economic growth and the sharp tightening of financial conditions has gradually emerged. While inflation expectations have not yet fully subsided, the recent market "recession trade" is still not enough to "force back" the Fed's tightening pace.

What impact will this round of interest rate hikes have on the capital market?

　　In view of the flexibility of Powell's suggestion that "the rate hike may be slowed in September", after the Fed's interest rate decision was announced, the 2-year US Treasury bond rate fell from 3.07% to 3%, and the 10-year US bond rate rose from 2.73% to 2.79% , the US dollar index fell from 107 to 106.5; the S&P 500 and the Nasdaq Composite closed up.

　　In the view of some market participants, investors have been worried that the Fed's interest rate hikes may push the U.S. economy into recession, and Powell's remarks to slow down the pace of interest rate hikes gave U.S. stocks a reason to rise.

　　From the perspective of long-term impact, Cui Rong believes that with the release of the Fed's marginal turn "dove" signal and the slowdown of US economic growth, it is expected that the dominant logic will turn to fundamental profitability. US stocks rebounded in stages before September, but profit expectations were revised down. Restrict rebound space.

U.S. bond interest rates may remain volatile in the follow-up.

　　In terms of the U.S. dollar, Yi Yao explained that the U.S. dollar is still strong in the short term, but it may fluctuate and peak in the third and fourth quarters of this year.

The tightening of the European Central Bank and the volatility of the euro interest rate exchange rate may be the largest marginal variables of the dollar exchange rate change in the second half of the year, while whether Japan adjusts the YCC is a "tail risk".

Given that the monetary tightening cycle of the European and Japanese central banks lags behind that of the United States, the deviation of their policy changes from market expectations in the future may be higher than that of the United States.

New York, USA at night.

Photo by Zhongxin Finance and Economics Gong Hongyu

How will the Fed rate hike process go?

　　Regarding the subsequent rate hike process, Powell did not give a clear view, and the speed of interest rate hikes depends on future data.

　　In this regard, Cui Rong analyzed that if the inflation data in July and August show a downward trend, the interest rate hike may slow to 50 basis points in September, and if there is a new high or no obvious downward trend, it is not ruled out The Fed continued to raise interest rates by 75 basis points.

The Fed is expected to raise interest rates to around 3.5% this year.

　　"If the economic slowdown exceeds expectations, it is not ruled out that the Fed will slightly slow down the pace of interest rate hikes, but we maintain our previous view that the current inflation trend is not enough for the Fed to stop raising interest rates soon." Yi Zheng said.

(Zhongxin Finance)