During the interest rate meeting in January, the Federal Reserve kept the benchmark interest rate and taper rate unchanged, which was in line with market expectations as a whole. In the early morning of January 27, the Federal Reserve released its latest statement on interest rate discussion, announcing that members unanimously decided to maintain the target range of policy interest rate of 0-0.25%, which is in line with market expectations. Unlike the acceleration of taper in December, the Federal Reserve decided to maintain a monthly reduction in the purchase of US $20 billion in US bonds and US $10 billion in MBS, and deleted the words "the follow-up rhythm can be flexibly adjusted", that is, it made it clear that it will completely withdraw from QE and end the expansion in early March.
In the statement on interest rate discussion, the Fed deleted the usual "loose wording" beginning, and the "Hawk" position is self-evident. Since the outbreak of the epidemic, the Federal Reserve has reiterated at the beginning of its statements at all meetings that it is "committed to using its comprehensive tools to support the U.S. economy in this challenging period, so as to promote its goal of maximum employment and price stability". However, in the statement on interest rate discussion in January, the relevant wording did not appear, that is, the Fed did not pave the way and directly cut into the assessment of the current situation and prospects of the US economy, indicating that the policy position has changed significantly to "Eagle".
In terms of economic assessment, the Federal Reserve determined that "inflation is much higher than 2% and employment is strong" and released the signal of raising interest rates in March. Since September 2021, the basis for the Federal Reserve to keep the interest rate unchanged is that "as inflation exceeds 2% for a period of time, FOMC will keep the benchmark interest rate unchanged until the labor market conditions reach the level consistent with the committee's assessment of full employment". However, at this meeting, the Federal Reserve significantly revised the relevant wording, "given that inflation is much higher than 2% and the labor market is strong, FOMC expects that it will be suitable to raise the federal fund target range soon."
The Federal Reserve announced the "table reduction principle" to pave the way for further normalization of monetary policy, suggesting that the intensity is far greater than in the past. Similar to the monetary policy normalization principles and plans released at the end of the last round of taper, the Federal Reserve released the latest table reduction principles, but did not specify the time point and rhythm of table reduction. Among them, the Federal Reserve believes that "adjusting the target range of the federal funds rate is the main means to adjust its monetary policy position.", Reiterated that "after the interest rate increase, the table will be reduced in a predictable way, mainly by holding US bonds that will not be renewed at maturity". But it is worth noting that the Fed deleted the phrase "gradual", suggesting that unlike the last round of slow contraction, this round of contraction will be faster.
At the press conference, Powell released a strong "Hawk" signal in his consistent vague wording. Specifically, Powell believed that "there is a lot of room for raising interest rates, which is planned to be implemented in March, and the range is uncertain" and "interest rates may be raised at every meeting in the future". In terms of table reduction, Powell "needs a large-scale table reduction, and will hold a meeting to discuss the table reduction after the interest rate increase, and at least once, hoping that the table reduction will be an orderly and predictable process". As for the yield curve, Powell believed that "the US bond interest rate spread (10y-2y) is within the trend range, which is monitored but not controlled".
Powell's "turn" caught the market "off guard", US stocks and gold fell sharply, and US bond interest rates rose sharply. From historical experience, Powell will generally release a partial "Dove" signal after the interest rate statement, which plays a "soothing" role in market sentiment. Powell's speech not only did not reveal any clues of "doves", but triggered greater panic. From the market trend, US stocks and gold fluctuated at a low level after a sharp decline, the 10Y US bond interest rate rose rapidly to nearly 1.9%, and the US dollar index remained at a high level near 96.5.
Looking ahead, in addition to the accelerated shift of the Federal Reserve, we need to pay more attention to the possible impact on the fundamentals of the US economy. Around the middle of 2022, the debt grace period for US residents will expire, which will lead to a sharp increase in debt repayment pressure. The average maturity scale of us credit bonds in the next five years exceeds US $1 trillion, and the proportion of speculative bonds continues to increase, increasing the pressure on corporate debt repayment. During the tightening of the Fed's policy, US residents and corporate sectors will be further under pressure, which will damage economic fundamentals. As a barometer of the market, the economy has suffered a negative impact, or will continue to suppress the market trend.
Risk warning: the covid-19 epidemic situation in the United States rebounded beyond expectations; The labor force's employment intention remained sluggish.
