(Important information, important information, important information. The control of the macro market is the core of the big trend. The Fed’s movements are particularly important in the face of the current dry liquidity market.)
First, let's review the key points of the Federal Reserve FOMC statement and Powell's press conference:
1. Interest rate level: The benchmark, reserve and discount rates were raised by 25 basis points. Some additional policy tightening is appropriate. The decision was unanimously passed by the voting committee. A pause in interest rate hikes was considered.
2. Banking crisis: The U.S. banking system is sound and resilient. Recent developments may lead to a tightening of credit conditions. The extent of the impact is still uncertain. We support strengthening relevant supervision.
3. Interest rate outlook: Credit tightening may mean that less work can be done on interest rate policy, keeping the forecast for a median interest rate of 5.1% at the end of 2023 unchanged, a rate cut this year is not the baseline expectation, and interest rates will be raised higher if necessary.
4. Economic outlook: Higher interest rates and slower growth are dragging down businesses. The U.S. economy is expected to grow by 0.4% in 2023, with a path to a soft landing.
5. Inflation expectations: Inflation remains high, PCE and core PCE inflation expectations for this year are raised, and the wording "recent inflation has eased" is deleted.
6. Employment market: Employment has increased and the growth rate is strong, the unemployment rate remains at a low level, and the estimate of the unemployment rate this year is highly uncertain.
7. Balance sheet reduction plan: The plan will continue and there has been no discussion of changing the plan. The recent balance sheet expansion reflects short-term loans, which is unrelated to monetary policy and is temporary.
8. Market reaction: As of press time, the price of gold has risen by more than 1%, the U.S. dollar index has fallen by 75 points, the U.S. Treasury 2Y yield has fallen by 20BP, the U.S. stock market rose by 1% and then fell by 1%, and Bitcoin fell by $1,000 against the trend.
9. Market expectations: The terminal interest rate of 4.95% will be reached in May, there is room for a 70BP interest rate cut compared to the peak by the end of this year, and the probability of a 25BP interest rate hike in May and no interest rate change is evenly divided. (This data is compiled from the team)
Through the analysis, we can find that the Fed is determined to reduce inflation, and the benchmark interest rate hike of 25 points is in line with expectations, but it will not stop because of the bank debt crisis.
After all, monetary policy has nothing to do with the debt crisis. Monetary policy is for a soft landing of the economy.
The Committee will continue to reduce its holdings of Treasury securities, agency debt, and agency mortgage-backed securities, as outlined in its previously announced schedule. The Committee remains firmly committed to returning inflation to its 2 percent objective. In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. If risks emerge that could impede achievement of the Committee's goals, the Committee will be prepared to adjust the stance of monetary policy as appropriate. The Committee's assessments will take into account a wide range of information, including labor market conditions, inflation pressures and inflation expectations, and financial and international developments.
Then US Treasury Secretary Yellen: Work with the Financial Stability Oversight Council to restore the ability to list non-bank financial institutions as systemic financial institutions and subject them to supervision. No consideration is given to providing insurance for all uninsured deposits.
All these data indicate that interest rate hikes will not stop until inflation slows down. However, the biggest positive is that there will not be many interest rate hikes. The inflation data at the beginning of this month showed a slowdown.
The bank debt crisis has instead stimulated the liquidity of funds, and the pie of safe-haven assets will grow in the midst of adversity.
The monetary policy statement suggests that the rate hike is nearing its end, and the recent banking turmoil has reduced the need for further rate hikes in the future. However, due to the resilience of inflation, rate cuts will not come soon, and the Fed's guidance on keeping interest rates high for longer remains. Compared with the Fed's "calmness", the market does not agree. Investors believe that the Fed has underestimated the potential impact of this round of banking turmoil, and thus factored in more expectations for rate cuts. We believe that the banking turmoil is a demand shock, which will have a suppressive effect on both economic growth and inflation, but considering that the United States still faces many supply constraints, this will reduce the impact of demand shocks on inflation, and the final result is more likely to be a "stagflation" pattern.
