Starting from 2021, the Federal Reserve will seem to be fighting an economic war every June, sending out hawkish signals like crazy:
June 2021 meeting: The upward movement of the Federal Reserve’s “dot plot” seemed to be the first shot in the interest rate hike, marking the beginning of the withdrawal of the ultra-loose monetary policy.
June 2022 meeting: The Federal Reserve fired a direct shot, raising interest rates by 75 basis points and significantly raising interest rate expectations.
June 2023 meeting: The Federal Reserve hinted that it would raise interest rates twice more, and it felt like it had its ammunition ready to fire at any time.
June 2024 meeting: It is estimated that interest rate expectations, and even long-term neutral interest rate expectations, will be raised again, as if the war machine is already running at full speed and ready to charge at any time.
For the stock market, cryptocurrency, and gold, the Federal Reserve seems to be declaring war every June in recent years, continuously raising interest rates, forcing the market to dance up and down.

In recent years, the Federal Reserve has continuously released hawkish signals at its June meetings. There are deep-seated reasons behind this. Let's take a look:

2021:
After the epidemic, the U.S. economy rebounded sharply, but supply chain problems and surging demand led to continued price increases, and inflationary pressure was huge.
In April 2021, the US CPI rose by 4.2% year-on-year, marking the beginning of out-of-control inflation.
In May, CPI rose 5% year-on-year, reaching the highest level since the financial crisis.
Faced with such inflationary pressure, the Fed had to adjust its strategy and began to release interest rate hike signals, marking a shift in its ultra-loose monetary policy. At the June meeting of this year, the Fed's dot plot moved up, issuing a warning of an interest rate hike for the first time.

The Fed originally planned to raise interest rates twice before the end of 2021, but at the March meeting, they changed their tune and said there would be no rate hikes before the end of 2021. Funny thing is that they also slightly raised the overnight reverse repo rate by 0.05 percentage points to 0.15%, which was like a shot in the arm for the market.

However, Fed officials are still insisting that "inflation is temporary", and their reaction is as slow as a turtle. Powell said afterwards that it would have been better if they had started tapering and raising interest rates earlier. He looked back and felt that the Fed was at least three to four months behind: it could have started sending tapering signals in June, taking action in July, withdrawing in November, and then starting to raise interest rates at the end of 2021. However, he also admitted that if this was done, although employment and the economy might be affected a little, inflation would not be so abstract and difficult to deal with.

2022:
Two years ago today, an 8.6% CPI report completely disrupted market expectations and the Fed's plans. Previously, the Fed had been saying that it would raise interest rates by 50bp in a row, but was caught off guard by the CPI and was forced to raise interest rates by 75bp in a row. This report also caused a series of chain reactions, such as the inverted yield curve of US Treasury bonds, which has continued to this day. At this meeting, the Fed also significantly raised the terminal interest rate level and inflation expectations, and lowered GDP expectations, suggesting that it would sacrifice economic growth to fight inflation.

The statement added the words "The FOMC is strongly committed to returning inflation to 2%"; since then, the Fed has raised interest rates by 75bp three times in a row, and the terminal interest rate is currently 5.5%, which many people could not predict; but the good news is that there is no possibility of a recession at present, but inflation is indeed a little high, so this meeting is expected to discuss the issue of inflation - but the wording is unlikely to be hawkish.

2023:
The Fed has taken another hawkish approach that exceeded expectations. With CPI continuing to be better than expected, the Fed raised its dot plot by 50 basis points, raised GDP and core PCE expectations, and lowered overall PCE expectations. Powell said that there will be one or two more rate hikes. Although there was no rate hike at this meeting, it was just a skip, not a pause.

However, the impact of this hawkish operation on the overall financial environment is not particularly large. The Fed raised interest rates for the last time in this cycle in July, and then did not do anything in the following meetings, and even relaxed early at the end of the year. Now it seems that this may be a mistake similar to that in 2021. However, we cannot blame the relaxation of the financial environment entirely. Due to the combined effects of US consumption habits, government fiscal subsidies, and the wealth effect of rising asset prices, US inflation is still high, but the economy has not declined. It can only be said that the Fed is playing a financial war this time, and we will see how they fight.

2024:
The meeting is about to be held (2:00 a.m. Beijing time this Thursday). The basic situation is that inflation continues to exceed expectations + the job market is strong + the economy continues to grow; the Federal Reserve may adopt a combination of raising interest rate expectations + unemployment rate expectations + inflation expectations + lowering GDP expectations.

Interestingly, the slightly higher unemployment rate and slightly lower GDP have given way to inflation, indicating that the Fed has a strong desire to combat inflation. The labor market is still strong and economic growth is not slow, which allows the Fed to find a dynamic balance in the battlefield of high interest rates, allowing inflation to slowly decline and gradually reach the 2% target.

Of course, the May CPI report is also very critical, and the market is expected to experience large fluctuations. The volatility of the S&P index may be greater than or equal to 1.5%, and traders are also using various methods to hedge and deploy their forces on the battlefield to meet the enemy.

Now, we can summarize a few points:
1. US inflation stubbornly exceeded expectations, especially at the beginning of the year, which was more likely to rise, which may be related to seasonal factors;
2. The U.S. economy is also stronger than expected. The recession signal that began in mid-2022 has not materialized until now, two years later, and the GDP growth rate in the second quarter seems to exceed expectations again;
3. The Fed wants to tighten more after early misjudgment, and economic employment and inflation also support tighter tightening. If it relaxes, it may continue to make mistakes;
4. The market's reaction may also be gradually dulling. The current main theme is still no recession + AI. Interest rates and inflation are secondary factors. Unless it is too tight, there will not be much impact.

As we continue to wait for the CPI report and the Fed meeting, I still recommend that everyone adopt a conservative defense mode.

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