According to market data, after the release of the minutes of the Federal Reserve overnight, the three major US stock indexes generally broke away from intraday lows and eventually closed up. As of the close of the day, the S&P 500 index rose 23.68 points, or 0.6%, to 4,027.26 points. The Dow Jones Industrial Average rose 95.96 points, or 0.3%, to 34 194.06. The Nasdaq Composite Index jumped 1 10.9 1 point, or 1%, to 1 1285.32 point.
After the minutes were released, the reaction of the US debt market was also extremely direct. The yield of 2-year US Treasury bonds, which is the most sensitive to interest rate policy, fell below 4.47%, hitting a new low, falling by 3. 1 basis point to 4.492%. Medium-and long-term US bond yields also generally weakened. The yield of 5-year US bonds fell by 6.2 basis points to 3.889%, the yield of 10-year US bonds fell by 6. 1 basis point to 3.7%, and the yield of 30-year US bonds fell by 9.8 basis points to 3.73 1%.
In the foreign exchange market, the dollar index fell further. The ICE dollar index, which tracks the exchange rate of the US dollar against a basket of six major currencies, fell 0.9% overnight, pushing down the 106 mark and refreshing a one-week low.
Obviously, even from the above fluctuations in the stock and debt markets, people can quickly conclude that the market has made a more dovish interpretation of the minutes of the Federal Reserve last night. So, what exactly does this Federal Reserve Minute say? Before the minutes were released, did market participants have any deviation in the interest rate pricing of the Fed's "short pigeon and long eagle"? Apart from interest rate changes, what other key information did the minutes of last night's Fed meeting reveal?
Below, we will help investors analyze from multiple dimensions:
Three main points of the minutes of the Federal Reserve in June 5438+0 1.
Viewpoint 1: Most participants think that the interest rate hike may slow down soon.
At the meeting of 5438+065438+ 10/-2 in June, Fed officials approved the fourth consecutive super-large interest rate increase of 75 basis points, bringing the benchmark interest rate to the range of 3.75%-4%. At present, they are still raising interest rates at the fastest rate since the early 1980s (1980) to reduce inflation close to the 40-year high. However, according to the minutes released on Wednesday, officials almost made it clear at this meeting that the rate hike could be reduced to 50 basis points as soon as next month?
According to the minutes of the meeting, "the vast majority of participants (asubstantialmajorityof) believe that it will soon become appropriate to slow down the pace of interest rate hikes. Slowing down in this case will enable the FOMC Committee to better evaluate the progress in achieving the goals of full employment and price stability. "
Some of these officials said that the risk of the Fed raising interest rates excessively is rising-eventually the rate increase exceeds the level needed to reduce the inflation rate to 2%. Other officials warned that continuing to raise interest rates at the rate of 75 basis points "increased the risk of instability or chaos in the financial system".
Of course, there are also a few officials who believe that it is best to wait until interest rates are "more clearly in the restrictive field and there are more concrete signs that inflationary pressures have obviously subsided" before slowing down the pace of interest rate hikes.
Comments: After the announcement of the minutes of the Federal Reserve last night, almost all market interpretations regarded the Federal Reserve as the most obvious dove information in the minutes. However, it should be pointed out here that the dove signal in this field is undeniable, but it is nothing new.
In fact, in the post-meeting statement of the Federal Reserve's monetary policy meeting at the beginning of 165438+ 10, the Federal Reserve added a sentence: In order to judge the rising rhythm of the future target range, the Committee will consider the cumulative tightening degree of monetary policy, the lag of monetary policy in affecting economic activities and inflation, and changes in the economic and financial situation.
At that time, the market thought that this was a signal that the Federal Reserve would reduce the rate hike in June+February, 5438. Since then, many Fed officials' speeches, although mostly hawkish, have basically not evaded and denied that the market bet that the pace of raising interest rates next month is expected to decrease.
In many articles about the interpretation of the Fed, we also mentioned the duality of the current Fed policy of "short dove and long eagle". "Short pigeon" means that in the short term (high probability next month), the Fed will slow down the rate hike to 50 basis points. Judging from the pricing changes in the interest rate market, before and after the release of the minutes, the expectation of the interest rate market for the Fed to raise interest rates by 50 basis points next month has not changed much, and it has remained near the probability of 80%.
Therefore, although the minutes of the Federal Reserve's meeting last night were "doves" in this respect, whether it must be the real trigger for the market rise may be debatable.
The second point: the peak interest rate is higher than the expectations of Fed officials.
After watching the "short pigeon" part, shall we watch the "long eagle" part again?
Federal Reserve Chairman Powell shocked the market at the interest rate meeting earlier this month. Powell said at the press conference at that time that a series of data released since the last meeting showed that the final interest rate level would be higher than previously expected. Interest rates are still a long way from the appropriate level, and it is "too early" to discuss when the Fed may suspend interest rate hikes.
This is also reflected in the latest minutes. According to the minutes of the meeting, since inflationary pressure shows little sign of easing, many participants believe that the final level of the federal funds rate required to achieve the FOMC goal is highly uncertain, and the evaluation of this peak will depend in part on future data.
More than one (a variety of) officials believe that high inflation and signs of persistent imbalance between supply and demand in the job market will require raising the benchmark federal funds rate to a level "slightly higher than they expected" next year.
As monetary policy is close to restricting the economy, participants also stressed that the change of interest rate level and policy stance achieved by FOMC's final interest rate hike will become more important than the speed of further interest rate hike.
Participants agreed that it is important to convey this difference to the public to strengthen FOMC's firm commitment to restore the inflation rate to 2%.
Comments: At first glance, the Fed's statement about the "Long Eagle" part of the peak interest rate next year is quite eagle, which is basically consistent with Powell's statement after the press conference. However, some people in the industry have noticed some problems after some "speaking like a book".
As we all know, in the interpretation of the minutes of the Federal Reserve, the nuances of quantifiers are actually easy to be ignored, but they are quite learned behind them. In the overnight interpretation of the well-known financial blog website Zerohedge and some American media, the focus is on one word: all kinds!
EllenMeade, a former Fed economist who has studied the communication mechanism of the Fed for a long time, said that the word variety is actually a term rarely used by the Fed, and it is often used when "ambiguity" is needed. She said, "If the minutes of the meeting say that' (several' participants think that the terminal interest rate will be higher-this is obviously not a strong message, so they need to blur it."
On the other hand, it may also mean that in the June meeting of the Federal Reserve at 5438+0 1, there may not be too many officials who explicitly support the view that the terminal interest rate will be higher, because if there are too many, more than half or most of the minutes can be replaced.
Therefore, industry experts believe that although Fed policymakers emphasize their "firm commitment" to reducing inflation, support for higher interest rate peaks may not be universal. The hawkish information in this part of the minutes is also biased towards doves to some extent?
The third point: it is first proposed that the probability of economic recession will reach 50% next year.
The minutes of the meeting released by the Federal Reserve on Wednesday also show that its internal economists predict that the possibility of the United States falling into recession next year has risen to nearly 50% due to the slowdown in consumer spending, global economic risks and the risk of further interest rate hikes.
The minutes of the meeting show that due to high inflation, Fed staff continue to believe that inflation expectations have upward risks. In terms of actual economic activities, the weak growth of real private expenditure in the United States, the deterioration of global prospects and the tightening of financial conditions are all regarded as major downside risks in the forecast of actual activities.
According to the minutes of this meeting, the staff of the Federal Reserve therefore continued to judge that the risk of the baseline forecast of actual economic activities is downward, and the possibility of the economy falling into recession at some time next year is almost as high as the baseline forecast.
Comments: This is actually the first time that the Federal Reserve has issued such a warning since it started raising interest rates in March.
Although Fed officials are basically academic experts in the economic field, we should know that when they make policy decisions at each meeting, it is not as simple as a dozen people sitting together at the opening meeting. The staff of the Federal Reserve Committee usually play an important role in the process of monetary policy formulation. They will prepare briefings and forecasts on the economic situation for FOMC participants in advance so that they can make a final decision on interest rates at the meeting.
As the Fed staff further lowered their expectations for the economic outlook, the risk of the United States falling into recession next year is likely to be officially put on the desktop of Fed officials. In fact, economists surveyed by the media earlier this month also believe that the possibility of the US economy falling into recession next year is as high as 65%. Bloomberg's economic model thinks that this possibility is as high as 100%.
It is worth mentioning that, before the release of the minutes of the Federal Reserve overnight, the economic data released on Wednesday also provided new evidence for the weak US economy and the cooling of the labor market, indicating that the sharp interest rate hike by the Federal Reserve is beginning to have a wide-ranging impact on the economy-business activities shrank for the fifth consecutive month in 1 1, and the number of people applying for unemployment benefits for the first time last week rose to a three-month high. Although the consumer confidence index and new home sales have improved, they are still at a low level, and consumer willingness and housing demand are still weak.
Judging from the pricing of the interest rate futures market, after the release of the minutes of the Federal Reserve last night, investors' expectation of the peak interest rate of the Federal Reserve in the middle of next year dropped rapidly, while the expectation of the Fed's interest rate cut in the second half of next year rose, which is probably the intuitive feedback of the dove information revealed in the above points 2 and 3?
In other words, the minutes of the Federal Reserve last night can actually be interpreted in three ways: the short pigeon is still a pigeon, the long eagle is a pigeon, and there may be a long pigeon after the short pigeon and the long eagle-the expectation of economic recession may force the Federal Reserve to start the interest rate cut cycle in the second half of next year?
Other details disclosed in the minutes of the Fed meeting.
In addition to the three most critical signals revealed by the interest rate policy, there are actually some small details worthy of attention in the minutes of the Federal Reserve last night. We also made some simple summaries as follows:
Inflation is unacceptably high.
FOMC participants agreed that inflationary pressure showed no signs of easing. There are still upward risks in the inflation outlook.
Many participants pointed out that the price pressure in the service sector has increased, and historically, the price pressure in this sector has been more persistent than that in the commodity sector. Some participants also pointed out that the recent high nominal wage growth rate and the recent low production growth rate, if sustained, will be different from achieving the inflation target of 2%.
In terms of the impact of inflation, some participants said that high inflation has the heaviest burden on low-income families, and for them, necessities such as food, energy and housing account for a large share of expenditure.
☆ Beware of wage-price spiral.
Participants believe that the labor market in the United States is still tense. Many people point out that there are preliminary signs that the job market is slowly developing in the direction of improving the balance between supply and demand. A few participants commented that the continuous tight supply in the labor market may lead to a wage-price spiral, although this spiral has not yet formed.
☆ Britain's debt crisis deserves attention.
So far, the US Treasury bond market, as the pillar of the global credit system, is still stable, but the market has been worried about the transaction difficulties caused by low liquidity. But so far, Fed officials have insisted that the bond market is flexible. The minutes of the meeting said: "Participants noted that despite the intensification of interest rate fluctuations and signs of liquidity tension, the US Treasury bond market has been operating in an orderly manner." The Fed staff who briefed the officials agreed.
The minutes of the meeting pointed out that the recent events in Britain deserve attention. In recent months, the Bank of England has been forced to intervene and buy bonds to restore market stability. This policy runs counter to the Bank of England's overall efforts to tighten rather than loosen monetary policy. Some people worry that if something goes wrong, the Fed may have to restart its asset purchases in the United States, and some people in Congress have warned the Fed not to follow this path.
According to the minutes, a few participants pointed out that the key is to be prepared to solve the interference to the operation of the core market in the United States in a way that does not affect the monetary policy stance, especially during the tightening of monetary policy by the Federal Reserve.
"Oracle Bone Inscriptions" Risk of Non-bank Financial Institutions
The minutes of the meeting also stated that "many participants noticed that the risks brought by non-bank financial institutions and the hidden leverage of these institutions may amplify the impact in the case of rapid tightening of global monetary policy."
The discussion on financial stability reflected in the minutes of the meeting is mainly in the non-banking field. It is worth mentioning that, just after the Federal Reserve meeting in June, 5438+0 1, FTX, a crypto exchange, declared bankruptcy and filed for bankruptcy. At present, the "Lehman crisis" in the currency circle seems to have a further spreading trend.
MichaelBarr, the Fed's top official in charge of financial stability and vice chairman in charge of supervision, told Congress last week that he was worried that the failure of the encryption industry might have a "negative impact" on the broader financial system.