On November 3rd, Beijing time, and November 2nd, 2022, Eastern Time, the Federal Reserve announced a 75bp interest rate hike decision, coupled with Powell's press conference after the meeting. Stocks and bonds both fell, and expectations for rate hikes rose.
Another 75bp rate hike in November was in line with market expectations, and the market interpreted the meeting minutes as dovish;
Powell's press conferences poured cold water one after another, and the market interpreted it in a hawkish way.
In this regard, I think:
<1>. "In determining the extent of future rate hikes, the Fed will consider the cumulative impact of previous monetary policy tightening and the lag in the impact of monetary policy on economic activity, inflation, financial development, etc."
This suggests that the Federal Reserve must both fight inflation and prevent excessive tightening, and its attitude towards slowing down interest rate hikes is relatively resolute.
<2>. "With the policy rate already at 4%, the height and duration of rate hikes will be more important than the speed of rate hikes in the future", "Given that employment and inflation data remain strong, future interest rate peaks will be higher and rates will stay high for longer", "It is very premature to consider or discuss a pause in rate hikes now"
Although the Federal Reserve plans to slow down the pace of interest rate hikes, the "front line" of interest rate hikes has been extended. Exchanging time for space does not seem to be a good thing for risky assets.
<3>. "A soft landing is still possible, but the window of opportunity has narrowed", "With interest rates moving higher, it's hard to see a soft landing", "No one knows if there will be a recession, and no one knows how bad it will be"
The Federal Reserve is under pressure to manage the recession and has begun to manage expectations for the recession.
In summary:
Although the pace of interest rate hikes has slowed down in monetary policy, this "higher and longer" statement means that monetary tightening is far from over and the interest rate turning point is far from coming.
There is still some time before the last FOMC of this year, during which the market will also receive two non-farm employment and two CPI inflation data. If the data show that inflation resilience remains strong, it may trigger market doubts about the Federal Reserve, and asset prices will face greater volatility.
Considering that the U.S. stock market has not yet completed its valuation cut, it is expected that the U.S. stock market will still have one last drop at the monthly level.