The Federal Reserve, which has been hawkish for two years, finally became a dove in the early morning of the 14th.
And this time the Fed is very dovish, too thorough, but it shows that there is a problem.
Although the market generally expected that the Fed would not raise interest rates this time, it basically believed that Powell would continue to be stubborn as usual.
As a result, Powell was also completely pigeon this time.
As late as December 1, Powell vowed that it was too early to confidently conclude that the Fed had taken a sufficiently restrictive stance, or to speculate on when policy might be eased.
As a result, only half a month later, on the 14th, Powell said that "the actions that the Fed has taken have brought the policy rate into restrictive territory." Interest rate cuts are starting to come into view, and policymakers are thinking about when it's appropriate to cut rates. And the timing of the rate cut was discussed at today's meeting. ”
Powell was directly slapped in the face by himself half a month ago.
Although Powell also added that "if the conditions are right, we are ready to tighten monetary policy further, policymakers do not want to rule out the possibility of further interest rate hikes." But the market basically took this sentence as air, because Powell himself said that the chances of a rate hike next year were very small.
The U.S. financial market is completely speculating on this interest rate meeting as having cut interest rates, the dollar has plummeted, U.S. stocks have risen sharply, U.S. Treasury yields have fallen sharply, and U.S. bonds have risen sharply, showing a carnival appearance.
But I personally believe that the Fed's sudden sharp dovish turn this time indicates that the US financial market is facing a major hidden danger, otherwise the Fed would not have changed its attitude 180 degrees in the first half of the month.
I analyzed in the ** on November 28 that there is not much time left for the Fed to be hard-mouthed, and as a result, the Fed is not hard-mouthed after only half a month, which actually shows that there are serious hidden dangers in the US financial market, and the Fed will not be able to hold on, so it will turn dove in advance.
At the same time, an important message may be revealed behind it, that is, the United States has dispelled the illusion that we will take over US bonds, and the Fed will turn dovish 180 degrees.
Specifically, I will talk about my personal views on this, and welcome to like and support.
First of all, don't believe that the Fed is talking about interest rate cuts based on the factor of falling inflation.
Because the core inflation rate announced by the United States on the 12th is still 4%, the same as last month, it is not the inflation factor that makes the Fed's attitude change 180 degrees in just half a month.
Moreover, Powell's speech on the 14th also exposed some falsehoods.
Powell said the Fed is willing to cut interest rates even if there is no recession. And we won't wait for 2% inflation to cut interest rates, because it will be too late, it will exceed the target, and it will take some time for policy to affect the economy.
Previously, Powell said that the Fed would raise interest rates even if there was a recession. And Powell has always said that he will wait until inflation falls back to the normal range of 2% before considering cutting interest rates.
Now it's too late to wait for inflation to return to 2% before cutting interest rates.
The implication is that the Fed can't wait until inflation is back to 2%, otherwise something will go wrong.
Powell went so far as to say that "we are well aware that we may be keeping interest rates high for too long;"We are fully committed to not having such a lapse."
This feels like it's already saying that the Fed has been keeping interest rates above 5% for too long and may have caused problems.
That's why the Fed made such a huge shift at this meeting.
This can also be seen in the change in the dot plot.
A dot in the chart represents what a Fed policymaker expects to be at the end of next year, and the 19 policymakers summarize the Fed's overall expectations for interest rates at the end of next year.
It is important to emphasize that the dot plot does not represent a static **, but the Fed is based on current expectations and can change at any time in the future.
For example, in the September dot plot, most Fed policymakers also believe that interest rates will remain at 5 by the end of next year25%, that is, the Fed is expected not to cut interest rates next year and maintain the current level of interest rates.
But in the December dot plot, most Fed policymakers already believe that the rate will end next year at 46%, based on 25 basis points per rate cut, the dot plot expects the Fed to cut rates three times next year.
And the market's expectations are obviously more aggressive than those of the Fed.
Traders in the U.S. interest rate market are already betting more than 70% on the probability that the Fed will cut rates in March next year.
And the market expects the Fed to cut interest rates by 150 basis points next year, that is, a total of 6 rate cuts.
Gundlak, the founder of Double-Line Capital, also believes that although the Fed has only hinted at three interest rate cuts next year, it may actually be forced to cut interest rates more often.
This also confirms my long-standing view that if the Fed cuts interest rates next year, it will only be forced to cut interest rates, rather than inflation falling back to the normal range of 2%.
Now the Fed has been seen through the reality, not the Fed's expectation management of the market, but the market expectation to run under the Fed's lead, and the market has become the market leading the Fed's nose, which is actually a huge blow to the Fed's credit, indicating that the Fed lacks monetary policy autonomy.
As long as there is a serious problem in the market, the Fed will be forced to cut interest rates and expand its balance sheet.
I have previously analyzed that the current decline rate of the Fed's reverse repo will be exhausted in April next year, and if the Fed continues to maintain high interest rates and shrink its balance sheet, then there will be a serious crisis in the liquidity of the U.S. financial market, which will lead to a financial crisis, which will force the Fed to cut interest rates and expand its balance sheet.
Personally, I think that the Fed's choice not to continue to be tough this time is related to the expectation that there may be big problems with U.S. Treasury liquidity next year.
Now the market generally has this expectation, so it is useless for the Fed to continue to be stubborn.
But such a huge change in the Fed's attitude in the past half a month still surprised most people.
Even Nick Timiraroos, a well-known journalist with a Fed mouthpiece, complained about the "huge difference" in Powell's statements in just two weeks.
It can be seen that the huge change in Powell's attitude in just 12 days this time is still very unexpected by the market.
In the past 12 days, it is likely that some major changes that are unknown have occurred that have caused the Fed's attitude to change 180 degrees.
My personal guess is that there could be two factors:
1. There are some major risks in the U.S. financial market, but they are tightly covered by the Federal Reserve, and people don't know what the risks are, and I guess it should be related to the liquidity risk of U.S. bonds.
2. The game between the United States and us has entered a showdown period, and something may have happened in the past half a month, which has made the United States dispel the idea of letting us take over US bonds.
I don't know exactly what's going on, I don't have any closed-source news channels, and all my analyses are based on publicly available information.
I'm just making some personal inferences based on the Fed's unusual shift this time, just for reference.
I have always stressed to you that when we look at finance and economics now, we cannot look at it in isolation, but we must combine it with geopolitics and international games to conduct a comprehensive analysis.
The influence of geoeconomics and political economy on the world economy is increasing.
Therefore, this time the Fed suddenly and completely turned dovish, or it has to be analyzed in combination with the international game.
I have noticed that in the past half month, the attitude of the United States towards us has obviously changed a lot.
After the San Francisco meeting, the United States did not show any goodwill, but in the past week, it has continued to use all kinds of rumors and slanders against us in the past, and attacked us again.
In the past week, the United States has intensively fried cold rice in this way to spread rumors and attack us, which on the one hand shows that the United States is poor in donkey skills, and it is still the same few tricks over and over again.
On the other hand, it also shows that the short intermission between the two sides seems to be over, and the two sides are beginning to enter a new round of the game.
And the Fed's complete dovish turn this time may also have something to do with it.
The United States has always wanted to keep interest rates high in order to carry out financial harvesting against the rest of the world.
But the problem is that maintaining high interest rates is also a huge burden for the United States itself, and it is particularly likely to trigger a liquidity crisis in the United States.
Therefore, if the United States wants to maintain high interest rates, it needs to have an additional large buyer to buy a large number of U.S. bonds to alleviate the liquidity pressure on U.S. bonds.
The United States has been coercing and enticing us in the past, trying to fool us into buying US bonds.
When the United States hopes that we will buy US bonds, the Fed will naturally be stubborn and try to maintain high interest rates.
But the past two weeks, maybe because of something. Judging from the current performance of the United States, the United States has completely dispelled the illusion that we will take over US bonds.
Then there is no way to solve the liquidity crisis of U.S. bonds by finding large buyers to take over, because Europe and Japan are currently unable to significantly increase their holdings of U.S. bonds.
For example, 88% of Japan's foreign exchange reserves have already bought U.S. bonds, and there is no money left to increase their holdings of U.S. bonds.
In this case, the only solution to the liquidity crisis of US bonds is for the Fed to cut interest rates and expand its balance sheet.
But cutting interest rates will cause the dollar to plummet and could lead to a sharp increase in inflation in the United States next year, and the Fed will certainly not cut rates easily if it is not a last resort.
The sooner the Fed cuts interest rates next year, the more serious the risk problem for the United States.
Therefore, I personally think that the important message behind the Fed's 180-degree change from hawk to dove is that we will not take over US bonds, and we have not made any compromises with the United States.
This also means that in the future, the United States will enter a new round of game struggle with us.
This is the exact opposite of the G2 theory and big deal advocated by many negotiators before.
This has been illustrated by the fact that the United States has been constantly spreading rumors and attacking us by stirring up cold rice in the past week.
The United States may have a showdown with us next year, or Biden will have a showdown with us.
Next year will be the year of the United States, and the game will enter an accelerated stage.
This article **"Big Vernacular Current Affairs**
Author: Star Talk.