The article comes from Teacher P

A detailed explanation of the Federal Reserve's September meeting minutes - there is almost no water in them, and they are very difficult to read. Those who agree with the conclusion can go directly to the summary version.

Yesterday, we were still talking about the minutes of the September meeting of the Federal Reserve, which we need to pay special attention to. It is indeed very hawkish. However, my friends will definitely ask, why the market, at least the US stock market, has not reacted significantly, the US dollar is also falling, and the US Treasury yield is also falling. In fact, we also talked about this issue yesterday, because in September, the market's view was still on inflation. At that time, although the yield of US Treasury bonds was high, both the ten-year and twenty-year bonds were around 4.5%. After October, the ten-year bond yield almost broke through 5%, and the twenty-year bond yield broke through 5.25%. We have also talked about the harm of high interest rates, which will aggravate the instability of the financial market. Therefore, since the break of "five", the hawkish thinking of the Federal Reserve has been restrained a lot. At present, except for the Federal Reserve Board member Bowman, all those who have spoken publicly have shown obvious signs of turning dovish.

So even though the minutes of the September meeting were not very friendly, more investors still think that this is "expired" information, and the Fed now "dares not" continue to raise interest rates. Of course, this is also because the current interest rate has reached a restrictive level, so the market did not react much to this. Even Bowman, who believes that interest rates need to be raised, was not very tough in his tone, and he also admitted that the current high yields on US bonds are the reason why the Fed needs to pay attention and remain cautious about interest rates. At present, the market expects that the probability of a rate hike in November is only 8.5%. When we looked at it on Tuesday, it was still 14%, and last week it was 23%, which means that the probability of a rate hike in November can almost be calculated. Of course, this is also within our expectations. In September, we predicted that even if there was a rate hike, it would most likely be in December.

Although the probability of a rate hike in November continues to decrease, the probability of a rate hike in December has risen to 26.1%. The data on Tuesday was 23.9%, but it is still lower than last week's 35%. It is a little early to discuss the December rate hike now. After all, there are still two months of data to look at. The only thing to remember is that the Fed's inflation expectation for 2023 is that the core PCE will be reduced to 3.3% or less. If this goal can be achieved, it is likely that the rate hike cycle will end and enter a stage of suspending rate hikes. If it cannot be achieved, I would not be surprised if the interest rate is raised to 6%. In addition, we still need to see if there are any pitfalls in the minutes of this meeting. After all, even if there is no rate hike, maintaining an interest rate of 5.5% will still make the market very fragile.

In the minutes of this meeting, the Fed has actually taken into account the interest rate of long-term government bonds. Of course, as we said before, although it has been taken into account, on the one hand, the interest rate is not so outrageous, and on the other hand, the market does not care. After all, gambling with the Fed is a tradition, and whether you win or not is another matter. Secondly, the Fed believes that the US GDP is still growing steadily, the labor market continues to be tight, and although the employment situation has slowed down, the unemployment rate is still very low. Consumer price inflation (PCE) has risen by 3.3% in the past 12 months, while core price inflation (core PCE) excluding food and energy has risen by 4.2%. Automotive products have increased exports, but because the growth of imports of goods and services has exceeded the growth of exports, the US nominal international trade deficit has widened.

Credit quality deteriorated further in many sectors but remained stable overall. In the commercial real estate sector, delinquency rates for nonfarm nonresidential commercial real estate bank loans increased in the second quarter, while delinquency rates for construction, land development, and multifamily loans remained roughly unchanged. Delinquency rates for loans in CMBS pools increased, driven by the office and retail sectors. Office delinquencies have risen 2% since January but remain below pre-pandemic averages. Delinquency rates for small business loans increased in June and July. Delinquency rates for credit card and auto loans rose further in the second quarter and are slightly above the average levels of pre-pandemic years. Despite rising interest rates, housing demand remains strong and new home construction is solid, reflecting in part the limited inventory of homes available for sale.

The share of potential borrowers with excellent credit scores expanded in the second quarter, moving further above pre-pandemic levels. Tracked default rates for investment and speculative corporate bonds rose in July but remain at historically low levels. The net tracked default rate for leveraged loans was little changed, but downgrades in leveraged loan ratings exceeded upgrades in July and August. Payment performance of residential mortgages has improved relative to many other types of loans. Delinquency rates for Federal Housing Administration and Veterans Affairs loans were lower in July than they were earlier in the year, and delinquency rates for conventional loans remain at historically low levels. Credit quality among municipal borrowers is also strong. With some households facing financial strain amid high inflation and declining savings, they are increasingly relying on credit to pay their expenses.

In discussing the policy outlook, participants continued to view that the stance of monetary policy must remain sufficiently restrictive to return inflation to the Committee's 2 percent objective over time. Most participants viewed that another increase in the federal funds target rate at a future meeting would likely be appropriate, while some viewed that further increases would not be necessary. Some participants noted that the process of balance sheet runoff could continue for some time even after the Committee begins to reduce the target range for the federal funds rate. Participants noted that the ongoing process of reducing the size of the Federal Reserve's balance sheet is an important part of its overall approach to achieving its macroeconomic goals.

So let's start with the conclusion. More Fed officials think that interest rates should continue to rise, and more people think that even if interest rates are cut, the balance sheet needs to continue to shrink and maintain the inflation target below 2%. Secondly, for the US economy, it is believed that economic activity has been expanding steadily, so the corresponding language in the post-meeting statement should be changed from "moderate" to "sound". It is believed that the US banking system is sound and resilient. It is unanimous that tightening credit conditions for households and businesses may put pressure on economic activity, employment and inflation, but the extent of these effects is uncertain. The members also agreed that they are still highly concerned about inflation risks.

For the risk market, this Fed minutes is still not good news even if the interest rate hike is removed. It is obvious that the pressure on household finances will increase. Even if excess savings can support for a period of time, the data has shown that more households are gradually increasing their reliance on credit. And although the overall bad debt rate is still within a controllable range, maintaining high interest rates is not going to end now, but has just begun. It can be expected that credit defaults will become more and more serious by mid-2024. In this case, how much money can be invested in the risk market? If the US stock market continues to perform well, there will be the possibility of gambling, but if it cannot maintain a sustained rise, funds will inevitably choose to hedge, and for#BTCand #ETH, liquidity may fall into further shortage unless there is an epic positive.

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