After the 1970s, the single interest rate increase of more than 50bp implemented by the Federal Reserve has the characteristics of strong pre emption, controlling inflation expectations and curbing inflation trend in the cradle. Although the past fundamental background cannot be analogized to the present, we believe that under the current extreme inflation pressure, the Fed needs to suppress inflation expectations by tightening expectations, and the increase of interest rate increase and advance will help the inflation expectations fall down as soon as possible. Therefore, there is also the possibility of raising interest rates by 50bp at the Fed interest rate meeting in May and June.
Historically, the Fed raised interest rates by 50bp in May and June to suppress inflation expectations
In the past, the Federal Reserve has chosen a single interest rate increase of 50bp or more in different scenarios. The core purpose of the large interest rate hikes of more than 50bp in the interest rate hike cycles in 1994 and 1987 is to raise interest rates in a preventive manner, timely stifle the signs of inflation, and the real economy is not overheating (the output gap is still negative). This practice is closely related to the policy philosophy of Greenspan, then chairman of the Federal Reserve, advocating "act preemptively when you can". The chairman of the Federal Reserve is also "vigilant against inflation in the cradle of inflation". When Volcker's interest rate hike is very large, he is also "vigilant against inflation in 1984". In this round of cycle, the interest rate has been raised sharply twice. The first time is mainly to suppress the inflation trend with signs of out of control; The main purpose of the second substantial interest rate increase is to eliminate the stickiness of inflation and prevent a rebound.
From the trigger factors of stopping radical interest rate hike (or withdrawing from the interest rate hike cycle), the cessation of interest rate hike cycle in 1994 and 1987 was accompanied by the bottom rebound of unemployment rate; The rhythm of the interest rate hike cycle in 1984 was mainly dominated by inflation, and the unemployment rate remained basically stable during this period. The main driving factor for withdrawing from the interest rate hike was the effective control of CPI.
On the whole, the single interest rate increase of more than 50bp implemented by the federal reserve after the 1970s has the characteristics of strong pre emption, controlling inflation expectations and curbing inflation trend in the cradle. Although the past fundamental background cannot be analogized to the present, we believe that under the current extreme inflation pressure, the Fed needs to suppress inflation expectations through tightening expectations, and the increase in interest rate increase and advance will help the inflation expectations fall down as soon as possible. Therefore, there is also the possibility of raising interest rates by 50bp at the Fed interest rate meeting in May and June..
Risk warning: the epidemic situation exceeded expectations, resulting in the extension of the easing cycle; Higher than expected inflation led to rapid tightening by the Federal Reserve
