Original title: Heavy! Fed’s hawkish Powell: plan to raise interest rates in March or raise interest rates at every meeting!Source: Oriental Fortune Network
This morning, the Federal Reserve ushered in the first interest rate meeting of the year!
At 3:00 in the morning, the Federal Reserve Open Market Committee (FOMC) announced its interest rate decision in January, keeping the interest rate near zero and reducing the scale of bond purchases. Completed Taper as scheduled in March.
In a subsequent press conference, Powell said (Fed monetary) policy has been adapting to changing circumstances. He was pleased with the resilience of the U.S. economy, and reminded that the Omicron variant would be detrimental to U.S. economic growth in the first quarter of 2022.
At the same time, Powell emphasized that achieving full employment and maintaining price stability both require the Fed to withdraw its easing policy, and it is still too early to judge whether the Fed’s easing policy is excessive.
On inflation, Powell reiterated that the decision to keep the policy rate unchanged is to support the Fed’s two goals of full employment and long-term inflation of 2%. Inflation remains “significantly above” the long-term inflation target of 2 percent. Bottlenecks and supply chain issues are holding back production, and those driving inflation are linked to the Covid-19 pandemic. “|We are wary that wage increases could be passed through to prices. Believe that all the Fed can do is facilitate the economic expansion.”
He made it clear that a number of factors are supporting a pullback in U.S. inflation: “Inflation remains high because of supply and demand imbalances, and the supply side is expected to ease less rapidly than we had previously expected, and inflation is expected to ease in 2022.”
In response to a reporter’s question, Powell said that inflation risks are still skewed to the upside, so the Fed’s policy takes into account the different outcomes that may occur under different economic conditions.
On the employment front, Powell said the U.S. labor market is very strong by many indicators. The job market has been improving broadly, with labor force participation rising but still subdued. The labor market is “very, very strong” and will likely continue to be so.
Powell also said when answering a reporter’s question that the actual outlook for the labor market may be uncertain because of Omikron or other factors, (but we) may have to adapt to such a state.
Finally, Powell said that he will steadily withdraw the easing policy in 2022, and said that (for now) a large-scale reduction of the balance sheet is required, and will meet to discuss the reduction of the balance sheet after at least one interest rate hike, and will discuss it at least once. It is an orderly and predictable process. The balance sheet will be reduced in a predictable manner, while the management of the balance sheet will be adjusted if necessary.
On Wednesday, the three major U.S. stock indexes collectively opened higher, maintaining gains throughout the day. However, during Powell’s press conference, the three major U.S. stock indexes turned down one after another. As of the close, only the Nasdaq closed slightly up 0.02% to 13,542.12 points, still approaching the low point since May 21 last year, which was set by Tuesday’s close. The Dow and S&P fell for two straight days. The Dow closed down 129.64 points, or 0.38%, at 34,168.09 points, setting a new closing low since December 1 last year set last Friday and closing down for the eighth day in the last eight trading days. The S&P closed down 0.15% at 4349.93 points, a new low since October 5 last year. It closed at a new low since the 12th of the same month on Tuesday, and closed down for the sixth day in the last seven trading days.
In addition, the yield on the 10-year U.S. bond broke 1.8% for the first time in the past four days, the 2-year yield recorded the largest daily increase in nearly two years, and the U.S. dollar index hit a one-month high. U.S. WTI March crude oil futures closed up 2.04% at $87.35 per barrel; Brent March crude oil futures closed up 1.99% at $89.96 per barrel, both hitting record closing highs since October 2014. Gold fell more than 1%, falling off a two-month high. Lunxi and Lun nickel ended the “two consecutive yin” and got out of the one-week trough.
Since the beginning of the year, the market’s worries about the Fed raising interest rates have gradually increased, and global assets have fluctuated wildly. However, market participants said that regardless of whether or not to raise interest rates in advance, the market has already expected the Fed to tighten monetary policy, and the convening of this meeting will make the Fed’s interest rate hike path expectations more clear.
“The first Fed interest rate meeting this year ends at 3:00 am Beijing time on Thursday, when the Fed will issue a meeting statement. The Fed has continued to tighten monetary policy since the fourth quarter of last year, and made it clear that it will withdraw from QE in March this year. At the same time, including Chairman Powell, A number of Fed officials continue to release tightening signals, suggesting that interest rates will begin to increase in March, and the Fed funds rate futures market is almost 100% expected to start raising interest rates in March this year. The recent adjustments in U.S. stocks and U.S. bonds are also in line with market expectations. In January, the Fed signaled that it was related to raising interest rates in March.” Li Yansen, chief macro analyst at Founder Medium-term Futures Research Institute, said that on the whole, raising interest rates in March seems to be a certainty. According to the Fed’s previous policy control style, clear policy guidance will inevitably be given before raising interest rates, so the January meeting is likely to further hint at raising interest rates in March.
According to Gong Ming, precious metals analyst at Jinrui Futures, in terms of interest rate hikes, according to CME Fed-Watch, the probability of raising interest rates at the March interest rate meeting is 93.4%, and the probability of raising interest rates three times during the year is 60%. “From this point of view, the market generally expects that this interest rate meeting will imply that interest rates will be raised in March and that interest rates will be raised three times this year. In terms of balance sheet reduction, due to the first reduction in the balance sheet due to the minutes of the interest rate meeting in December last year, and Powell before the silent period The debriefing speech and the Fed officials’ stance are hawkish, the market generally expects that this meeting may further clarify the conditions suitable for starting the reduction of the balance sheet, and may even hint at the rhythm of the reduction of the balance sheet.” Gong Ming said.
“The current level of U.S. inflation has reached the highest level in nearly four decades. Against this backdrop, it is imperative for the Fed to adjust its monetary policy.” said Gan Hongliang, an analyst at Daotong Futures.
According to Shanshan, a precious metals analyst at the Huishang Futures Research Institute, with the continued rise in U.S. inflation and the accelerating improvement in the job market, the signal for an interest rate hike has become clearer. Federal Reserve officials have also previously indicated that interest rate hikes are likely to take place in March, and the number of rate hikes has increased.
Expectations of the Fed to accelerate monetary policy tightening will not change
According to data previously released by the United States, the U.S. Markit service industry, manufacturing, and comprehensive PMI data in January were all sluggish, far below market expectations. The service industry and comprehensive PMI hit an 18-month low, and the manufacturing PMI hit a record 15. The new monthly low made the U.S. the second weakest among developed economies after Japan.
However, all respondents said that although the U.S. economy is showing signs of weakness, the Omikon virus may not have a major impact on the economy in the medium and long term, and the Fed’s policy rhythm is not expected to change much.
In this regard, Li Yansen said that the U.S. official and Markit manufacturing PMIs peaked in March and July last year, respectively, and accelerated their downward trend in the fourth quarter of last year. This shows that the U.S. economy has come under pressure at a stage. The service industry PMI has also fallen sharply recently, which is related to a new round of epidemics caused by the Omega virus. The above situation shows that the US economy is currently facing a combination of medium- and short-term downward pressures.
In Gan Hongliang’s view, the impact of the raging Omekron virus on the U.S. economy in January is undeniable. The soaring number of infections made the U.S. economy almost stagnate at the beginning of the year, but Omekron’s impact on output is far greater than demand. growth will pick up again once restrictions are eased. In addition, the sluggish performance of Markit service industry, manufacturing and comprehensive PMI data in the United States in January is also related to seasonality. After Christmas and New Year’s Day, the seasonality of US economic production and consumption turned from strong to weak. Under this circumstance, the expectation of the Fed to speed up the tightening of monetary policy will not change.
Gong Ming also believes that the lower-than-expected PMI in the United States in January was mainly due to the impact of the epidemic. The epidemic has a certain impact on the supply chain and also exacerbated the contradiction of labor shortage. Among them, the service industry was more directly affected by the epidemic. In January, the MARKIT service industry PMI in the United States fell to near the line of prosperity and decline. However, the market may have had certain expectations for the poor performance of the PMI in January, and the weekly unemployment benefit claims in January have always remained high.
“While the economy is under pressure, the Fed’s two main goals – employment and inflation – remain elevated, and inflation, in particular, continues to refresh the highest level in decades, and is the main reason for the Fed’s emphasis on accelerating tightening. In this impact Under the circumstances, it is difficult to change the Fed’s expectation of accelerating monetary tightening.” Li Yansen said that in the later period, we can pay attention to the speed of inflation in the second quarter and whether the Fed slows down the pace of policy.
Gong Ming said that the economic uncertainty brought about by the epidemic will indeed restrict the Fed’s policy tightening space in the future, but it is unlikely that the Fed will slow down the pace of policy tightening due to the poor PMI data in January. She explained that, on the one hand, there has been concern recently that the spread of the Omikron virus in the United States seems to have eased, and the severe disease rate of the Omikron virus is not high. If the peak period of infection gradually passes, the subsequent impact on the economy may be affected. relatively limited. On the other hand, the Fed’s policy is still based on two dimensions: inflation and employment. At present, inflation pressure is still high, and employment is on the path of gradual recovery, unless the employment situation encounters serious risks, or inflation pressure is significantly eased, and the policy is gradually The urgency to tighten remains high.
In fact, judging from the performance of the financial market in the past week, U.S. bonds fluctuated at a low level, the dollar continued to strengthen, and U.S. stocks fell sharply, indicating that the market’s impact on the Fed’s accelerated monetary tightening has been digested through expectations. Gan Hongliang said that the next step is the process of fulfilling expectations, which is likely to be in line with expectations. At that time, the market may usher in a short-term negative performance, but it does not mean that the financial market has begun to turn upward, although the price trends of various assets will be differentiated. , but the overall trend may be oscillating consolidation, and the possibility of a strong and sustained rebound is relatively low, because the market expects the Fed to raise interest rates in March is imminent, and the recent global economic situation is still not optimistic.
“From a market point of view, once the Fed gives a clear commitment to raise interest rates in March at the January meeting, the financial and commodity markets may be affected by short-term negative effects. However, most investors have fully expected this event, so there is a high probability of a short-term decline. There is an oversold rebound. On the contrary, if the Fed starts to slow down the pace of hawkishness, or even turn to dovishness, the market bullish sentiment will be boosted. The financial market may show a significant rise. From a medium and long-term perspective, if the Fed raises interest rates in March, it will It means the beginning of a new round of interest rate hike cycle, and continued substantive tightening will bring long-term negative impact on global financial markets.” Li Yansen said.
In Gong Ming’s view, the financial market’s response to the March rate hike may be limited, or it may pay more attention to the Fed’s position. If the interest rate meeting clarifies the rhythm of interest rate hikes in March and the path of continuous interest rate hikes at the subsequent quarterly and monthly interest rate meetings, the uncertainty of current economic growth is still high, and the expectation of accelerated monetary policy tightening may cause the market to worry about the sustainability of economic growth , risk assets may be under pressure down. If the interest rate meeting takes into account the uncertainty brought about by the epidemic, as well as political and military risks, the stance is relatively moderate, and risk assets may revise their pessimistic expectations earlier.
“According to the path of the dot plot in December last year and the speeches of the Fed officials, it is expected that interest rates will be raised as early as March.” Shanshan said that in the short term, high inflation, geopolitical conflicts and panic are all supportive for precious metals. , but if the Fed releases a hawkish signal, the precious metals will face greater pressure to pull back. The market outlook needs to continue to pay attention to whether the Fed’s interest rate hike can substantively solve the problem of high inflation.
In terms of precious metals, Gong Ming believes that rising geopolitical risks in some regions will obviously boost precious metals. If the conflict further escalates, funds may continue to seek the safe-haven properties of precious metals under the rapid deterioration of risk appetite in the global capital market. If a conflict breaks out in Russia and Ukraine, it may affect the future energy supply in Europe, leading to another energy crisis in Europe, and the inflationary attribute of precious metals will also strengthen. Precious metals may have some short-term support until geopolitical risks ease. If the margin of geopolitical risk eases, precious metals are expected to return to the logic of tightening Fed monetary policy, rising U.S. bond yields, or a downward trend.
Crude oil fluctuates at a high level, macro background and geopolitics become core factors
At present, the bond market, the stock market and the commodity market represented by crude oil are all highly concerned about the Fed’s next move. For the international crude oil market, it can be said that macro factors are the most important factor affecting the current stage, so the final statement of the Fed is very critical. Prior to this, due to the escalation of geopolitical conflicts, international crude oil rose rapidly.
“At present, if the Fed takes a tough stance and accelerates its tightening of monetary policy, it will have an impact on the market’s risk appetite, easily triggering a sharp drop in the stock market, and at the same time putting pressure on oil prices. If it is a dovish statement that tends to stabilize market sentiment, Then investors in the crude oil market will turn their attention to geopolitics and other factors, and the oil price will likely remain strong,” said Yang An, head of energy and chemical research and development at Haitong Futures.
According to Yu Pengsen, a researcher at Zhaojin Futures Energy Chemical, the Fed raising interest rates has always been expected in market transactions.
“Especially the U.S. stock market, which has been declining for several days, has now fallen below most of the technical support, leaving only the possibility of a theoretical rebound. This is a normal response to the latest U.S. policy. Strictly speaking, strong The U.S. dollar will restrain the rise of crude oil, and may even cause the decline of crude oil, but the U.S. dollar is not the only factor affecting crude oil.” Yu Pengsen said.
In fact, the main factor affecting the recent surge in international oil prices is the issue of geopolitical conflicts, especially the Ukraine issue. According to Yu Pengsen, the current negotiations between NATO and Russia have been fruitless, both sides are unwilling to make concessions on issues of their own concern, and the United States has even threatened to impose unprecedented severe sanctions on Russia. This is undoubtedly one of the main reasons for the strength of oil prices.
In addition, the reporter learned that OPEC+ countries continued to increase production less than expected, which also triggered a series of reactions. Yu Pengsen said that the United States has once again announced that it will release 13.4 million barrels of crude oil from its strategic reserves due to persistently high oil prices.
“Currently, the overall crude oil market inventory is at a seven-year low. If there are some other situations that lead to tight supply, including geo-risks or less-than-expected OPEC+ production increases, under the current background of high overseas inflation, it will inevitably further stimulate the market to bullish oil prices.” Yang “We certainly don’t want to see this kind of damage to the economy, but we need to be vigilant about this risk,” Ann said.
According to Yu Pengsen, for oil prices, the geopolitical conflict and the contradiction between supply and demand cannot be alleviated and will always be supported, but this does not mean that the center of gravity of oil prices will move up again. He explained that according to the supply and demand expectations of OPEC+ and EIA, the international crude oil will achieve a balance between supply and demand in the first quarter of this year. Before that, the crude oil inventories in the United States have basically bottomed out and rebounded, and the institutional investment banks’ bullish expectations for oil prices are limited to the first quarter. This shows that everyone has a weaker perception of the future oil price and the balance of supply and demand in the oil market. Then, after suffering a certain negative pressure in the short-term, even a short-term decline in oil prices can limit the pace of continued rise. Quoting the statement of Saudi Arabia, the main OPEC country, that OPEC does not pursue excessive oil prices, but pursues a balance between supply and demand.
As far as the recent performance of international oil prices is concerned, the volatility continues to intensify. In this regard, Yu Pengsen believes that one is geopolitical conflict, and the other is that there are large differences in short-term market expectations. After all, many institutions are pessimistic about oil prices during the year, which will trigger continuous wide fluctuations in oil prices. Looking at the market outlook, the expectation of oil prices is still unclear, and it still needs to be observed. The short-term is not a good time to participate in crude oil.
“Macro factors and geopolitical risks are the core factors affecting oil prices at present and in the future, but the difference between the actual development of these factors and market expectations will make investors’ logic sway, which can easily lead to unstable market sentiment. This has led to sharp fluctuations in oil prices, and the recent performance of the crude oil market and U.S. stocks is reflecting the current market swing.” Yang An said.
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