On Wednesday, June 15, US Eastern Time, the Federal Reserve announced after the meeting that it would raise the target range of the federal funds interest rate from 0.75% to 1.00% to 1.50% to 1.75%. This is the biggest single rate hike by the Fed since Walker 1994+0 1 took charge of the Fed, and it is also the first time that the Fed has raised interest rates by 75 basis points in more than 27 years.

Recently, the market strongly predicted that the Fed would raise interest rates at such a rate. According to CME's "Fed Watch Tool", the US federal funds rate futures trading market predicted on Tuesday that the probability of the Fed raising interest rates by 75 basis points in June was 89%, compared with the forecast of 3.9% a week ago.

The only surprise for hawks to raise interest rates

So far, the Fed has raised interest rates three times in a row, 25 basis points in March this year and 50 basis points in May. Different from the unanimous agreement at the last meeting in May, at this week's meeting, one of the voting members of the Federal Reserve's Monetary Policy Committee FOMC opposed a 75 basis point rate hike, while EstherGeorge, president of the Kansas City Fed, advocated a 50 basis point rate hike.

The media said that George's opposition was surprising. Her inflation view was previously regarded as a long-term hawkish tendency. Earlier this year, her statement was also regarded as hawkish. In recent speeches and interviews, George urged the Fed to take "very thoughtful and conscious" actions and consider the impact of table contraction on tightening the monetary cycle. The media believes that George probably thinks that raising interest rates by 75 basis points is not deliberate and deliberate.

Delete the statement that inflation is expected to return to the target and increase the strong commitment to reduce inflation to the target.

According to the resolution statement issued after Wednesday's meeting, in terms of interest rate decision-making, the Federal Reserve reiterated the FOMC's dual goals of achieving full employment and long-term inflation reaching 2%, but deleted the statements in March and May that "with the appropriate firm (tightening) monetary policy, the (FOMC) Committee predicted that inflation would return to the long-term inflation target of 2% and the labor market would remain strong".

The commentary believes that deleting the statement that FOMC expects inflation to return to 2% indicates that the Fed believes that price pressure will continue and become more vigilant about the possibility that inflation expectations may get out of control.

After expressing its decision to raise interest rates by 75 basis points to support the above two goals, the Fed continued to reiterate its statement in March:

"The (FOMC) Committee predicts that it will be appropriate to continue to raise the target interest rate range."

Different from the previous statement, this statement adds a sentence:

"The (FOMC) Committee is firmly committed to the goal of reducing the inflation rate to 2%."

The bitmap shows that all officials expect to raise interest rates to more than 3% by the end of this year, and one expects to cut interest rates next year.

The bitmap of the expected future interest rate level of Fed officials released after this meeting shows that compared with the last bitmap released in March this year, the Fed policymakers' predictions of interest rate hikes in the past two years are obviously more radical.

This time, all Fed officials predicted that the policy interest rate (the federal funds rate) would rise above 3.0% by the end of this year, and only one official predicted this in May. This time, there are eight officials, accounting for 44% of the total number, and it is expected to eventually rise to 3.25% to 3.50%, five officials, nearly 28%, and five officials are expected to rise to 3.0% to 3.25%.

This time, 16 people expect the interest rate to be above 3.50% next year, among which 5 people expect the interest rate to be above 4.0%, but one person expects the interest rate to fall below 3.0%, which means that this person expects to cut interest rates next year. Only five people predicted in March that the interest rate would exceed 3% next year.

In the next year, 14 people expect the policy interest rate to be still higher than 3.0%, of which 12 people expect it to be higher than 3.25%, 8 people expect it to be between 3.25% and 3.5%, and only 4 people expect it to be lower than 3.0%. Only five people estimated that the interest rate exceeded 3.0% in March.

It is expected that the policy interest rate will rise sharply this year, the economic growth rate will rise sharply this year, and the unemployment rate is expected to rise for three years.

Consistent with the forecast shown in the bitmap, the updated economic outlook data released after this meeting shows that the Fed has comprehensively raised the expected level of policy interest rate, and this year's interest rate has risen to above 3%, with the largest increase:

It is estimated that by the end of 2022, the federal funds rate will rise to 3.4%, which is 1.9% higher than that expected in March by 1.5 percentage points.

It is estimated that by the end of 2023, the federal funds rate will be 3.8%, compared with 2.8% in March.

It is estimated that by the end of 2024, the federal funds rate will be 3.4%, compared with 2.8% in March.

Judging from the above expectations, the Fed expects interest rates to peak next year, and then fall back the following year.

At the same time, the Federal Reserve lowered its economic growth forecast for the next three years, the biggest decline this year, and raised its personal consumer price index (PCE) and core PCE inflation forecast this year, raising its unemployment rate forecast for three years across the board:

It is estimated that GDP growth in 2022 will be 1.7%, which is lower than the expected growth rate of 2.8% in March 1. 1 percentage point. The expected GDP growth rate in 2023 and 2024 will be reduced from 2.2% and 2.0% to 1.7% and 1.9% respectively.

The unemployment rate is expected to rise from 3.5% to 3.7% and 3.9% in 2022 and 2023 respectively, and from 3.6% to 4. 1% in 2024.

PCE inflation rate is expected to increase from 4.3% to 5.2% in 2022, decrease from 2.7% to 2.6% in 2023 and decrease from 2.3% to 2.2% in 2024.

The inflation rate in the core area of PCE is expected to rise from 4. 1% to 4.3% in 2022, from 2.6% to 2.7% in 2023, and remain flat at 2.3% in 2024.

Continue to reiterate that high inflation reflects energy prices, strong employment growth and overall economic activity rebound.

When evaluating the economy, this statement did not reiterate the statement made in May that "household expenditure and fixed investment in enterprises remained strong despite the overall slowdown in economic activities in the first quarter", but renamed it:

"After a slight decline in the first quarter, overall economic activity seems to have picked up."

The statement continued to reiterate that "employment growth has been strong in recent months", but did not reiterate that "the unemployment rate has fallen sharply" and renamed it "the unemployment rate has remained low". On inflation, the statement reiterated the statement made in March:

"The high inflation reflects the imbalance between supply and demand related to the epidemic, rising energy prices and broader price pressures."

Further emphasize the economic impact of the conflict between Russia and Ukraine, and reiterate that the Federal Reserve is highly concerned about the inflation risk and the possible impact of the China epidemic.

The statement of this meeting continued to reiterate the expression of the impact of the Russian-Ukrainian conflict first mentioned in the March statement: Russia's actions against Ukraine "caused great" economic difficulties, but deleted the following sentence: "The impact on the American economy is highly uncertain".

The statement in May mentioned for the first time that "the invasion and related events are putting new upward pressure on inflation and may also put pressure on economic activities". This time, it further emphasized the impact of the Russian-Ukrainian conflict and changed the possible impact on the economy into a positive impact:

"The invasion and related events are putting new upward pressure on inflation and putting pressure on economic activities."

This time, I reiterated that the China epidemic, first mentioned in the statement in May, "may aggravate supply chain interference", and also reiterated that FOMC added in May "pay close attention to inflation risks".

Table reduction should be carried out as planned in May.

In May, the Federal Reserve announced the route of reducing its balance sheet, and began to reduce its bond position from June 1. At first, it reduced at most $30 billion of US Treasury bonds and175 billion of institutional mortgage-backed securities (MBS) every month, and after three months, it doubled the maximum monthly reduction.

This statement did not reiterate the above line, but only indicated that it would continue to reduce its holdings of government bonds, institutional bonds and institutional MBS in accordance with the reduction line announced in May.

This article comes from what I saw on Wall Street.