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Data released by the U.S. Department of Commerce on October 17 showed that U.S. retail sales data in September increased by 0.7% month-on-month, far exceeding economists' expectations of 0.3%. The strong economic data triggered a sharp rise in the Fed's tightening expectations, and the yields of U.S. bonds of various maturities collectively soared. At the same time, Morgan Stanley and JPMorgan Chase also raised their expectations for the annual growth rate of U.S. GDP in the third quarter to 4.9% and 4.3%, respectively. Although the recent performance of the U.S. economy has exceeded expectations, the Federal Reserve is likely to "stand still" in November. If the subsequent economic data continues to exceed expectations, the Federal Reserve may be determined to raise interest rates in December.

Part 1: US economic resilience exceeded expectations, retail data was unexpected

1. U.S. retail sales data for September increased by 0.7% month-on-month, far exceeding economists' expectations of 0.3%

2. Year-on-year, US retail sales in September increased by 3.8% to US$704.9 billion

3. As US economic data continues to perform well, Morgan Stanley has raised its forecast for the annual growth rate of US GDP in the third quarter to 4.9%

4. JPMorgan Chase expects growth of 4.3%, and Goldman Sachs also raised its forecast to 4%.

Part 2: Expectations of Fed tightening have risen sharply, and the possibility of rate hikes has increased

1. With the strong performance of US economic data, the Fed's tightening expectations have increased

2. The yields of US Treasury bonds of all maturities have soared collectively, and the yield of 2-year US Treasury bonds has hit a new high since 2006

The 3.5-year U.S. Treasury yield hit a new high since 2007, and the 10-year U.S. Treasury yield gradually approached the 5% mark

Part 3: The depletion of excess savings in the United States has become a negative factor for future consumption

1. Bank of America CEO Brian Moynihan said the Federal Reserve's actions to raise interest rates to fight inflation have successfully slowed U.S. consumer spending

2. As much of the excess savings from the pandemic have disappeared, consumers are increasingly using credit cards to manage their spending

3. Bank of America's credit card balances rose to $98 billion in the third quarter

Part 4: Whether the interest rate hike cycle has ended is still uncertain, and the US economy faces the risk of recession

1. The probability of the Fed raising interest rates has risen sharply. The probability of at least one rate hike before the end of January next year has exceeded 60%, and the probability of a rate hike in December this year has also reached about 50%.

2. The US CPI data in September failed to fall for three consecutive months. Coupled with the continued strong consumer demand, the Federal Reserve faces greater pressure in its future monetary policy decisions.

3. The Fed's expectation of maintaining high interest rates for a longer period of time may eventually plunge the US economy into recession. Matthew Martin, an American economist at the Oxford Economics Institute, believes that high interest rates, US auto industry workers, a possible US government shutdown in November, and higher oil prices are all risks that may eventually overwhelm the US economy.

Part 5: The inversion of the U.S. Treasury yield curve has eased, but the risk of recession still exists

1. With the expectation that the Fed will keep interest rates higher for longer, long-term bond yields may have room to rise further in the future, and the 10-year US Treasury yield may even exceed 5%.

2. The bond market currently has a fairly strong bearish bias and momentum, which is keeping potential buyers away from the market

3. This also means that the Fed is not very effective in suppressing inflation and may maintain high interest rates for a longer period of time in the future, which will increase the risk of a future economic recession.

4. Yang Aozheng said that the Federal Reserve is deliberately creating tight expectations to control inflation, and the inflation situation in the United States remains severe

Summarize

The resilience of the US economy is beyond expectations, but the Fed's tightening pressure still exists. The Fed needs to strike a balance between controlling inflation and economic growth to ensure that the US economy is on a healthy track.

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