The Fed’s March interest rate hike is almost a foregone conclusion, and the keynote of China’s monetary policy adheres to “I am the main, the word is stable” | Monetary Policy | Federal Reserve |

Original title: The Fed’s interest rate hike in March is almost a foregone conclusion

Our reporter Bao Xing’an

On January 27, Beijing time, the Federal Open Market Committee (FOMC) of the Federal Reserve announced the statement of the January interest rate meeting, announcing that the benchmark interest rate will remain unchanged in the range of 0% to 0.25%. Markets expect the Fed to raise interest rates in March. According to an expert interviewed by a reporter from Securities Daily, although the expectation of an increase in the US dollar interest rate has increased in this round, foreign capital has not flowed out of China substantially, but instead insisted on increasing its holdings in a trend.

The Fed also said it expects the right time to raise the target range for the federal funds rate to come soon, given that inflation is well above 2% and the labor market is strong. Decided to continue reducing the size of monthly net asset purchases, allowing asset purchases to end in early March. Starting in February, it will increase its holdings of U.S. Treasuries by at least $20 billion and agency mortgage-backed securities by at least $10 billion a month.

Luo Zhiheng, deputy dean and chief macro analyst of Yuekai Securities Research Institute, told the “Securities Daily” reporter that the Fed’s resolution statement basically conformed to current market expectations and played a soothing role in the market.

Bai Xue, an analyst at the Research and Development Department of Oriental Jincheng, told the “Securities Daily” reporter that according to the plan of the Fed’s interest rate meeting, it is almost a certainty to start raising interest rates in March. In the first half of this year, against the backdrop that the overall U.S. inflation situation is still grim, the Federal Reserve will further strengthen its guidance on inflation expectations by maintaining a hawkish policy stance and rapidly tightening monetary policy. The number of interest rate hikes will be 3 to 4 times a year, and the pace of monetary policy tightening will be “slow in the first place”, and the characteristics of discretionary decisions in the second half of the year will be more obvious.

“In terms of rhythm, the market unanimously expects the Fed to start raising interest rates in March, and raise interest rates every 3 months, and raise interest rates 4 times throughout the year. Therefore, the Fed did not raise interest rates before the end of the reduction in bond purchases, and basically began to raise interest rates in March. In line with market expectations.” Luo Zhiheng said.

What the market is more concerned about is that the US will start raising interest rates as early as March, how will it affect China?

CITIC Securities FICC chief analyst Mingming told the “Securities Daily” reporter that in the context of the Fed’s expected tightening, it is expected that my country’s monetary policy will remain independent, and will maintain a looser monetary policy this year, and will continue to be in a loose monetary direction in the short term. In the stage of easy credit transmission, the monetary policy differentiation between China and the United States will be less restrictive to domestic monetary policy in the short term.

Luo Zhiheng said that despite growing concerns about U.S. tightening expectations, China’s monetary policy insists on “maintaining me and taking the lead.” The dislocation of the monetary policies of China and the United States is fundamentally due to the dislocation of the economic cycle. In 2021, thanks to the global leadership in epidemic prevention and control, China will be the first to complete the recovery cycle and take the lead in realizing the normalization of monetary policy. At present, China’s economy is facing the triple pressure of “shrinking demand, supply shock and weakening expectations”. Monetary policy has helped to stabilize growth. Recently, MLF and reverse repurchase rates have been lowered, and LPR has also been lowered. Since January, the dislocation of the policy cycle between China and the United States has driven the divergence of the trend of national debt, and the interest rate gap between China and the United States has narrowed significantly. In the window period of the first quarter, the domestic easing may be further increased.

Bai Xue believes that it is not necessary to overestimate the constraints of the US monetary policy on the marginal easing of my country’s monetary policy. At present, the rhythm of macroeconomic repair in China and the United States is dislocated. In the first half of this year, the domestic economy is facing certain downward pressure. Monetary easing is an important force for stabilizing the macroeconomic market.

“The determinant of China’s monetary policy in the future will be the economic situation. It is expected that in the first half of this year, my country will still cut the reserve ratio and interest rates. The main observation point is whether the real estate market will continue to decline, and whether the GDP growth rate in the second quarter is imminent. The possibility of less than 5%.” Bai Xue said.

Bai Xue believes that maintaining external equilibrium and stabilizing the RMB exchange rate has always been an important consideration in my country’s monetary policy. The strong run of the RMB in 2021 also provides room for moderate depreciation this year. It is expected that if the renminbi depreciates by 5% or more in 2022, it will be within the tolerance range of the regulatory authorities and will not cause obvious constraints on the marginal easing of monetary policy. Generally speaking, in 2022, my country will mainly determine the trend and pace of monetary policy based on the domestic economic and financial situation.

Talking about how changes in US monetary policy will affect the A-share market and my country’s bond market, Luo Zhiheng believes that in terms of A-shares, the tightening of US monetary policy will suppress capital risk appetite. From the perspective of valuation, the risk of high valuation in the early stage is gradually released, and high-end manufacturing, new energy, and consumer core assets have high allocation value. From the perspective of capital, the expectation of this round of US dollar interest rate hikes has increased, and foreign capital has not flowed out significantly, but insisted on trending increase in holdings. And the RMB exchange rate against the US dollar is still appreciating, at the highest level since May 2018.

“In the medium and long term, the stock market will strengthen significantly, and growth stocks will be stronger. From previous experience, stocks have risen to a certain extent after half a year of interest rate cuts. The degree of differentiation in market allocation has weakened, and it tends to be more balanced.” Luo Zhiheng said.

Mingming believes that tightening monetary policy in the United States will benefit the domestic bond market through channels that affect the trend of risk assets. The Fed’s early interest rate hike may lead to a short-term decline in US stock yields. It is expected that the decline in US stocks will drive A-share adjustments, further driving down investors’ risk appetite and benefiting domestic interest rates.