China News Service, Beijing, November 11 (Xinhua) -- The Federal Reserve has "stood still" for the second time in a row: in the early morning of the 2nd, the Federal Reserve announced that it would maintain the target range of the federal funds rate at 2.5% to 25.5%, which is in line with market expectations.
Regarding the pause in interest rate hikes, Zhou Maohua, a macro researcher at the financial market department of Everbright Bank, said that the main reason is that the US inflation has fallen well in recent months, and the market interest rates have soared and the financial environment has tightened, which has reduced the need for the Fed to raise interest rates further.
The Federal Reserve's latest interest rate meeting statement said that recent indicators point to strong economic growth in the United States in the third quarter. At the same time, job growth has slowed but remained strong since earlier this year, unemployment remains low, and inflation remains high. The U.S. banking system is sound and resilient.
The CICC research report pointed out that the Fed believes that the U.S. economy is performing strongly, inflation is further improving, and it is not in a hurry to resume raising interest rates under the trade-off. The recent rise in Treasury interest rates and tighter financial conditions have also given the Fed more time to wait and see.
After choosing to pause rate hikes in a row, will the Fed end there or will it still return?
"We will proceed with caution." Fed Chairman Jerome Powell said this at a press conference after the regular monetary policy meeting. He said the recent climb in Treasury yields has pushed up borrowing costs, which could ease price pressures and affect the Fed's monetary policy. At the same time, he stressed that "there is no interest rate cut at all" and that there is still a long way to go to bring inflation down to the set target of 2%.
Zhou Hao, chief economist of Guotai Junan International, bluntly said that Powell basically did not discuss the possibility of mentioning "one more interest rate hike" in the September interest rate meeting, and instead expressed it as "submitting new expectations at the December interest rate meeting". For the bond market, which has been "panicking" for a long time, it seems that it has received only one signal: the possibility of the Fed ending this round of interest rate hikes has further increased.
The research report of Huatai Securities pointed out that Powell did not rule out the possibility of subsequent interest rate hikes, saying that he had not yet decided whether to raise interest rates in December, but his statement on the tightening of financial conditions and the decay of the effectiveness of the dot plot over time suggested that the Federal Reserve may have ended the interest rate hike cycle, and the overall statement released a dovish signal. It is more likely that the Fed will not raise interest rates at its December meeting. However, if inflation exceeds expectations significantly in the near future, especially if core inflation and inflation expectations pick up significantly, the possibility of another rate hike by the Fed may rise.
In Zhou Maohua's view, although the Fed released that it may still raise interest rates in the future, the market interprets it as dovish, betting that the Fed will end its interest rate hike cycle and is expected to cut interest rates as soon as mid-next year. The Fed is at odds with market expectations.
He pointed out that the U.S. employment and economic performance are strong, but inflation is also entering a difficult phase. The inflation base effect has weakened, the downward trend of commodity inflation has slowed down, and wage growth and geopolitical conflicts have led to greater uncertainty in the inflation path. In addition, in an environment of uncertainty, the Fed wants to maintain flexibility in policy operations.
"December could still be the last rate hike." Zhou Maohua said that if the U.S. consumption, employment data, and market interest rates fall more than expected, it may reduce the likelihood of the Fed's interest rate hike decision in December.
How does the market view the latest signals from the Fed? U.S. equities and bonds rose in response, followed by Asian equities.
Xiao Jiewen, an analyst at CICC, believes that for the market, a pause in interest rate hikes will help boost market risk appetite, and assets that have adjusted more in the early stage will get a respite. Judging from the signals released by this meeting, the room for further increases in short-term interest rates in this round of interest rate hike cycle may be relatively limited. Although Powell said that a rate cut is still out of the agenda, at least for economic growth, the risk of the Fed "going too far" has decreased, and the growth outlook is also favorable.
"Ideally, if demand continues to fall steadily and supply continues to improve, the probability of a soft landing for the U.S. economy in the future will further increase under the 'two-pronged approach'." Xiao Jiewen said that after the interest rate meeting, the U.S. bond interest rate has fallen, the three major U.S. stocks have risen, and the dollar has fallen, which also shows that the market's risk appetite has improved.
"The Fed paused interest rate hikes this time, external market sentiment improved, and the sentiment towards China's stock market was warm." Zhou Maohua said that on the whole, the impact of the previous round of interest rate hikes on China's economy was limited, and the marginal impact on China is expected to continue to weaken at the end of the Fed's interest rate hike. (ENDS)