The policy of the Federal Reserve was basically decided in June+February, 5438.
Federal Reserve Chairman Powell's latest statement at the Brookings Institution last week set the tone for the 65438+February meeting, and the aggressive interest rate hike policy that began in June is likely to slow down gradually from next week's meeting. His views are also similar to the previously published minutes of the meeting and the latest statements of several Fed officials, indicating that a major consensus has been reached within the Committee.
The Fed previously attributed the adjustment of its policy stance to the lagging effect and degree of monetary policy on economic activities and inflation. The latest data shows that the trend of inflation peaking and falling is becoming more and more obvious. Last week 10, the price index of personal consumption expenditure increased by 6.0% year-on-year, and the core PCE that the Fed was most concerned about increased by 5.0%, both of which declined. The Purchasing Managers' Survey (PMI) released before shows that the gradual balance of consumer demand and the improvement of supply chain have made the upstream cost pressure of enterprises continue to fall, reducing inflation.
BobSchwartz, a senior economist at Oxford Economic Research Institute, said in an interview with China Business News that falling prices undoubtedly gave room for policy adjustment, and the Federal Reserve would take action in June+February, 5438. But obviously, inflation is still at a high level, and the pause of the tightening cycle seems far away.
It is worth noting that while prices are peaking, the downward pressure on the economy is also increasing. As a key barometer of American factory activities, 10, the ISM manufacturing index of the Institute of Supply Management 165438+ fell to 49 in October, entering a contraction range. The PMI survey of service industry released in the coming week is also expected to show that the expansion will further slow down and approach the threshold. The Beige Book's report on the latest economic situation of the Federal Reserve shows that high inflation and interest rate hikes are aggravating economic uncertainty.
According to the interest rate observation tool of CME, the probability of raising interest rates by 50 basis points in 65438+February is close to 80%, and it is expected that the peak interest rate will drop from 5.07% last month to 4.95% next year. At the same time, investors believe that the Fed's interest rate will drop to 4.5 1% by the end of next year, which means there is still room for two interest rate cuts. Affected by this, the yield of two-year US bonds closely related to interest rates fell below 4.30%, and the US dollar index fell below the 104 mark.
Within the Federal Reserve, people are cautious about making policy changes in advance. New york Fed President JohnWilliams and St. Louis Fed President JamesBullard said recently that interest rate cuts may not appear until after 2024. Powell also tried to avoid any discussion about interest rate cuts, saying that there is still a long way to go to restore price stability, and history strongly warned against relaxing the policy prematurely.
The continuous tension in the job market may bring uncertainty to the realization of the inflation target. June 5438+065438+ 10 Non-farm report shows that the salary growth rate is rising and the unemployment rate is low, which continues to put pressure on the labor costs of enterprises. Many Fed officials had previously worried that wage growth caused by tight labor market would put upward pressure on inflation. Schwartz told reporters that the job market shows no obvious signs of slowing down, the wage growth rate is accelerating, and the Fed needs the labor market to cool down faster to achieve the goal of a soft landing. However, this road is already very narrow. He believes that unless more progress is made in reducing inflation in the service industry, interest rate risk will tilt to a higher level. Schwartz predicted that the Fed will slow down the rate hike to 50 basis points next week, and then raise interest rates by 25 basis points in February next year, and then choose to wait and see. Recent data show that the consumption vitality will support the US GDP to remain on the expansion track in the fourth quarter and the first quarter of next year, but the financial tightening caused by subsequent interest rate hikes will lead to a shallow recession.
Capital fleeing US stocks or facing challenges
As the Fed continues to release the signal that it will slow down the interest rate hike in the future, the kinetic energy of the US stock rebound has not been exhausted. In the eyes of optimistic investors, the market uncertainty brought by interest rates is decreasing. The Chicago Board Options Exchange's (CBOE) panic index (VIX) soared to 34.53 in June 5438+1October 65438+February, when US stocks hit a year low, and has now fallen to 19.06, the lowest since April this year.
It is worth noting that the flow of funds shows the psychology of investors taking profits. According to the data of financial data provider EPFRGlobal, the outflow of US equity funds in the past week was 654.38+062 billion US dollars, the highest since April, and the market's worries about economic growth resurfaced.
A report released by Cleveland Federal Reserve Bank last week showed that the interest rate of the Federal Reserve has exceeded the level required by the usual monetary policy rules. The latest quarterly interest rate forecast calculated by the Fed rules shows that the short-term interest rate target in the fourth quarter of this year should be 3.52%, which is lower than the current federal funds interest rate range of 3.75%-4.00%. Then, considering that the Fed's interest rate hike cycle has not yet ended, borrowing costs will rise or further impact the economy.
IpekOzkardeskaya, senior analyst at SwissquoteBank, said: "Strong economic data means that the Fed will continue its tightening policy and may target a relatively higher final interest rate, which is not good for stock valuation. Therefore, the S&P 500 index has limited room for rebound, which coincides with the top of the decline channel so far this year, which should mark the end of this bear market rally. It is expected that the index will fall to around 3400 points in the next step. "
MikeWilson, Wall Street analyst and chief stock strategist of Morgan Stanley, who predicted the trend of US stocks most accurately this year, also warned that the performance of American companies will be greatly revised down in the future, which will deal a heavy blow to US stocks.
"The bear market is not over yet. If our profit forecast is correct, US stocks will continue to fall. " Wilson predicted in his outlook that "the profits of American companies will drop 1 1% in the coming year. By then, it will not only hurt technology companies that are more sensitive to interest rates, but the pain will spread to a wider range. It is predicted that the S&P 500 index will fall to 3,000-3,300 points sometime next year1-April. We believe that by that time, the revised accelerated profit forecast will reach its peak. "
EthanHarris, an economist at Bank of America, said that the economic recession could happen at any time, because all the major economic indicators in the United States are either in the recession area or have developed in this direction in recent months. Although the US labor market has continued to grow, he pointed out that the employment growth trend has declined in the past 65,438+02 months. If this situation continues, employment will turn negative in the summer of 2023. Bank of America is still bearish on the performance of risky assets in the first half of 2023. By then, the narrative will change from inflation and interest rate shocks to recession and credit shocks. In terms of investment strategy, Bank of America believes that by doing more bonds in the first half of the year to cope with the hard landing risk and doing more stocks in the second half of the year, the risk appetite will be improved after the Fed's policy peaks.