The Fed has stopped raising interest rates three times in a row, and the Fed's attitude has begun to shift sharply.
Although it is already widely expected that the Fed will pause interest rate hikes, the December interest rate meeting still gave the market some "surprises".
In the early morning of December 14, Beijing time, the Federal Reserve announced its last interest rate decision of the year. In line with market expectations, the Fed kept the target range for the federal interest rate unchanged this time, which is the third consecutive pause in interest rate hikes since the start of its tightening cycle in March last year.
Fed Chairman Jerome Powell said that the timing of interest rate cuts was discussed at this meeting and a signal of interest rate cuts was released.
The interest rate hike is over, and the Fed turns dovish
Analysts generally believe that the Fed's rate hike cycle is over. The main bases are as follows:
1. The Fed's dot plot shows a significant revision of the interest rate level at the end of 2024 compared with September, and the median expectation for the interest rate at the end of 2024 is 46%, compared to 5 in September1%, indicating that the median Fed** expectation of a rate cut next year has risen from 50bp to 75bp.
2. Powell spoke and took the initiative to turn pigeons. He admitted that the policy rate is currently at or near its peak, and although the Fed is prepared to tighten monetary policy further at the right time, it is unlikely to raise interest rates at this time.
3. Expectations for personal consumption expenditures (PCE) and core personal consumption expenditures (core PCE) in 2023 have both been lowered, each of which has been lowered by 05 percentage points, indicating that the decline in inflation this year is more certain.
Tiffany Wilding, managing director and economist at PIMCO, said: "The Fed has kept its key overnight rate at 5 as expected25% to 550%。The Federal Reserve has released its latest dot plot that depicts policymakers' expectations for the future direction of interest rates. The dot plot is more than expected. The median rate for 2024 has moved down by 50 basis points, suggesting a 75 basis point cut next year (compared to our expectation of a 50 basis point cut like September). Importantly, all but three of them believe in at least a 50bp cut next year. ”
According to Tiffany Wilding, this means that the Fed** seems increasingly confident that it will achieve a soft landing next year. The Fed's economy shows that they expect inflation to fall sharply, economic growth to be slightly below trend, and unemployment to be in line with trend.
Ming Ming, chief economist of CITIC**, said: "The dot plot, the meeting statement and Powell's speech all reflect that the current Fed will raise interest rates is almost a foregone conclusion. ”
The resilience of the U.S. economy in 2023 is mainly due to the fiscal spending of the sector and the consumption driven by the excess savings accumulated by residents in the early stage. The Ministry of Finance's interest expenses will be high next year, and the bipartisan competition will also limit the space for fiscal stimulus, and excess savings have been exhausted around the third quarter of this year. Therefore, the only way out is for the Fed to take the initiative to turn dovish and release a signal of interest rate cuts in line with the demands of the Ministry of Finance.
Goldman Sachs: Interest rate cuts will start in March next year
After the Federal Reserve's monetary policy decision and economic ** report, the team of top investment bank Goldman Sachs quickly reacted, and their latest ** is that the Fed will start its first interest rate cut in March next year.
The Federal Reserve's latest economic report shows that they believe the preferred inflation gauge, the core PCE** index, will slow to 2.y. by the end of 20244 percent, compared to 2 in September this year6%。
However, the Goldman Sachs economics team, led by Jan Hatzius, has a different view, and they expect a greater slowdown in core PCE, reaching 21%, which is close to the 2% inflation target set by the Federal Reserve.
Goldman Sachs cited the latest PPI report, which showed that the year-on-year increase in US PPI in November had fallen to 09%, less than 1%. Analysts believe that this means that the pace of the core PCE slowdown will also be greater than expected.
Given the premise that core PCE can return to target sooner, "we now expect the Federal Open Market Committee (FOMC) to cut rates sooner and faster," the Goldman Sachs report wrote. ”
At the press conference, Fed Chairman Jerome Powell maintained a more conservative tone, saying that interest rate cuts are starting to come into view, and policymakers are thinking about and discussing when to cut interest rates.
How does it affect us?
After the results of the Federal Reserve's interest rate meeting were announced, the RMB in the foreign exchange market responded**. As of 14:00 on December 14, the onshore and offshore RMB real-time exchange rates against the US dollar have increased by about 400 basis points.
Ding Shuang, chief economist of Greater China and North Asia at Standard Chartered Bank, said that high interest rates in the United States will remain high until the middle of next year, while China will maintain a loose monetary policy until the middle of next year, and there will be interest rate cuts. Therefore, the monetary policy divergence between China and the United States will still exist in the first half of next year.
Considering that the current U.S. economy, whether it is consumption, investment, manufacturing and non-manufacturing activities, has shown signs of cooling, and the policy rate has entered the terminal level, it is expected that the 10-year U.S. Treasury interest rate may continue to weaken in the future, and there is a possibility of a downward breakthrough of 4%.
It is expected that the stage when the pressure on the renminbi really decreases may not be until the second half of next year. Although China's interest rates are still low in the second half of the year, if China stops cutting interest rates and the United States starts cutting interest rates, this is also a divergence from another perspective. Although the absolute value is still higher than the interest rate in the United States is higher than that of China, in the case of narrowing interest rate differentials, the pressure on capital outflows will be reduced, so the exchange rate of the yuan (against the dollar) will be around 7 at the end of next year.
While it may not be possible to wait quickly for the Fed to pivot to rate cuts, starting to cut interest rates in the future will help drive the release of global liquidity, which is a major boon for global financial markets. For example, for **, interest rate cuts will drive the risk-free rate downward, and risk appetite will be restored, thereby supporting *** growth stocks may be more beneficial;For Treasuries, the bear market is likely to be over and as the pivot in interest rates moves down, the recovery will begin.