Like last month, the Fed once again received extremely unexpected "off-chart" inflation data before the interest rate decision, but compared with last month, the Fed may be "much luckier" this time-it will not be "caught off guard" by the sudden data!
Before the interest rate meeting in June, the US CPI data of off the charts was released just in the week of the silent period of the Fed, which caused the Fed to have little way to change the aggressive interest rate hike bet that the market suddenly warmed up.
This time, although the US CPI data is even more out of the chart than at that time-entering the "ninth era" in one fell swoop, since the data release date is just before the silent period, Fed officials still have the opportunity to influence the market's interest rate hike expectations through wording guidance.
Since the US CPI was released in June last Wednesday, many Fed officials, including Federal Reserve Governor Waller, St. Louis Fed President Brad and Atlanta Fed President Bostic, have made public speeches. However, no matter how hawkish or dovish these officials are, it seems that they are not inclined to raise interest rates immediately, that is, by 100 basis points in July.
The forecast of "interest rate increase 100 basis point" was poured cold water.
According to the data released by the US Department of Labor last Wednesday, the CPI rose by 9. 1% year-on-year in June, a 40-year high, indicating that inflationary pressure in the United States continues to spread throughout the economy. After the release of this data, the market's probability of the Fed raising interest rates 100 basis points this month is expected to rapidly ferment to over 70%.
However, Nick Timiraos said that although some market participants thought that Fed policymakers might open the door for a larger rate hike at the July 26th-27th meeting, before the silence period that began on Saturday, several Fed officials threw cold water on this idea in the latest interviews and public comments.
Some officials pointed out that just as they raised interest rates at the fastest rate in history, there were signs that economic activity was weakening. Christopher Waller, the governor of the Federal Reserve, said at a meeting last Thursday, "People don't want to see interest rates rise excessively. The rate hike of 75 basis points is already very large in itself. Don't feel that we haven't finished our work until we reach 100 basis point. "
Waller said: "We know that this inflation report is bad, and it is even worse than we thought." . "However, it is crucial that we don't want to make policies easily based on just one data."
St. Louis Fed President Brad, who is also a hawkish camp with Waller, also said last week that after the CPI was higher than expected in June, he tended to insist on raising interest rates by 75 basis points later this month, rather than raising interest rates on a larger scale. "I think 75 basis points have many advantages, which makes the benchmark interest rate roughly reach the neutral level that policymakers think," Brad said.
In addition, Bostic, president of Atlanta Federal Reserve, pointed out at a forum hosted by Tampa Bay Business Magazine in Florida last Friday that a sharp interest rate hike may lead to unnecessary economic weakness.
Other Fed officials expressed unease about the recent acceleration of interest rate hikes. George, chairman of the Federal Reserve Bank of Kansas City, who voted against interest rates at last month's meeting, said last week that "the risk brought by rapid interest rate hikes is that the speed of tightening policies exceeds the speed of economic and market adjustment."
Fed officials have announced interest rate hikes in the past three interest rate meetings. The first time was in March-raising interest rates by 25 basis points; Subsequently, the Federal Reserve raised interest rates by 50 and 75 basis points in May and last month, respectively, and the single rate hike has reached the highest since 1994. Since the federal funds rate was used as the main policy-making tool in the early 1990s, the Fed has never tried to raise interest rates by a full 65,438+0 percentage points.
There is a huge amount of gambling in the interest rate futures market.
According to the pricing of the Federal Reserve Observation Tool of Chicago Business Association, the probability that the current interest rate futures market expects the Fed to raise interest rates by 75 basis points at this month's interest rate meeting is 7 1.5%, and the probability of raising interest rates by 100 basis points is 28.5%.
Some insiders said that raising interest rates by a full percentage point may not only aggravate the risk of economic recession, but also have many other disadvantages, such as making officials explain the future policy strategy complicated.
Laurence Meyer, a former director of the Federal Reserve who now runs the forecasting company LH Meyer, said that if the Fed wants to raise interest rates by 100 basis points in one fell swoop, it's best to find a very reasonable reason-for example, officials must clarify what led to another policy shift and what led them to take more radical steps, but now they obviously haven't.
If the interest rate is raised by only 75 basis points again, officials will have more room to send different signals: that is, they can show that they have the ability to maintain this historic interest rate hike when demand and inflation continue to rise, and they can also slow down the pace of interest rate hike when inflation and economic activities slow down.
It is worth mentioning that in the federal funds rate futures market, there was a big order that shocked the market last Friday. The direction of this transaction is to "bet" on the forecast that the Federal Reserve will raise interest rates by 65,438+000 basis points this month, which suddenly warmed up last week. The future position, namely the federal funds rate 10 in June 2022, was established shortly after the stronger-than-expected retail sales data was released in June. If the Fed raises interest rates by 75 basis points again this month, this position will be profitable.
The transaction was completed at 8: 47 am on Friday, new york time, with a scale of 30,000 contracts, accounting for 65,438+05% of the total open positions of the futures as of Thursday. It is equivalent to a value of $65.438 +0.25 billion per basis point and a nominal value of $65.438 +0.5 billion. After this transaction, the 10 month contract once rose sharply, reaching an intraday high.
Earlier last week, Jay Bryson, the chief economist of Wells Fargo, and others also called for a larger rate hike after the CPI data was released, but Bridson admitted on Friday that the appeal of this bet had declined. He said, "Although the discussion of this topic is expected to be put on the table by the Federal Reserve, it is still a bit too radical to get the support of an absolute majority of officials in order to raise interest rates by 65,438+000 basis points."
In fact, even if the Fed only raises interest rates by 75 basis points again at its upcoming meeting, its interest rate increase in the past five months will be equivalent to the sum of all interest rate increase cycles from 20 15 to 20 18 years-which will raise interest rates to 2.25% to 2.5%, which is closer to the official forecast of neutral interest rate that neither stimulates nor restricts demand.
This article is from Cailian.