The Federal Reserve raised interest rates by 25 basis points as scheduled and will start to shrink the table in May. At the interest rate meeting in March, the Federal Reserve announced an interest rate increase of 25bp for the first time since December 2018, which was in line with market expectations. The open market operating interest rate was raised simultaneously, which was consistent with the rate increase. The overnight repo rate was raised from 0.25% to 0.5%, and the overnight reverse repo rate was raised from 0.05% to 0.3%. The dot matrix chart shows that most officials predict that interest rates will be increased seven times in 2022, a significant increase from the expected three interest rate increases in December, and the benchmark interest rate may rise to 2% by the end of the year. After the meeting, Powell said that he would open the table reduction in May, which is consistent with the statement that "the table reduction will follow the interest rate increase" at the last meeting.
An epic interest rate hike cycle is under way. The Fed is about to enter the most violent interest rate hike cycle after the Volcker period. In the four decades since the oil crisis, successive fed chairmen have never faced such high inflation. Since its September 2020 meeting, the Federal Reserve has always emphasized maintaining a loose policy stance and supporting a loose financial environment. However, relevant statements were completely deleted in the March meeting. Powell stated that "the US economy is very strong and ready to deal with the tightening of monetary policy", which symbolizes the comprehensive shift of the Fed's policy position. The Fed's confidence in economic growth stems from the strong performance of the labor market and the weakening of the negative impact of the epidemic.
Under the change of geopolitical pattern, the duration of high inflation was further prolonged. The Federal Reserve showed full concern about inflation pressure and admitted for the first time that "it may take longer for inflation to return to the price stability target of 2% than expected". In addition, rising energy prices have pushed up overall inflation, and the soaring prices of crude oil and other commodities caused by the conflict between Russia and Ukraine have brought additional upward pressure to US inflation. Powell confessed that the impact of the Russian Ukrainian conflict on the US economy is highly uncertain. Based on this, FOMC revised down its forecast for real GDP growth from 4% to 2.8%, and raised its inflation forecast. PCE grew by 4.3% in 2022, significantly higher than the forecast in December.
The possibility of China's central bank cutting interest rates again needs to be re examined. After the release of financial data in February, it once triggered the expectation of market interest rate reduction, but there may be spring festival disturbance behind the ups and downs of social finance. From the perspective of merger from January to February, credit and social finance are not poor, so there is no need to be misled by the single month data in February. In addition, to avoid credit collapse, the focus is to avoid mortgage collapse and solve the drag of mortgage. Interest rate reduction is not the most suitable tool. Recently, the RMB exchange rate fluctuated greatly, the interest rate gap between China and the United States narrowed sharply, and there is still great depreciation pressure on the subsequent exchange rate. Considering various internal and external factors, the possibility of further interest rate reduction by the Central Bank of China is significantly reduced. The driving force of monetary policy in the future may mainly lie in the expansion of credit scale.
Risk factors: the epidemic worsened again, the conflict between Russia and Ukraine escalated, and the Fed tightened its policy beyond expectations.
