The Federal Reserve accelerated tightening to "control inflation". With the support of macro policies and "vaccine recovery", the US economy continued to repair rapidly, the employment market performed strongly, and the "labor shortage" continued. U.S. demand still significantly exceeds supply, superimposed with the new supply shocks such as the conflict between Russia and Ukraine and the Chinese epidemic, U.S. inflation has not yet peaked. The "labor shortage" in the job market and inflationary pressure jointly point to the accelerated tightening of the Federal Reserve's monetary policy.
Although the Fed's current policy focus has shifted to "controlling inflation", it still faces multiple constraints. In the first half of this year, the "trilogy" of monetary policy normalization will be fully opened, but the path of interest rate increase and table contraction as the "highlight" is still unclear. The Fed will remain flexible and make "discretionary choices" according to future economic data and changes in the situation, striving to achieve a "soft landing" of the economy while curbing inflation.
The actual rate increase of the Federal Reserve during the year may be lower than market expectations. At present, the depth of real interest rate in the United States is negative, which objectively provides space for the Federal Reserve to raise interest rates quickly in the short term. Recently, the main officials of the Federal Reserve have frequently made hawkish statements, pushing up the market interest rate increase expectation: the annual interest rate increase expectation implied by CME federal fund interest rate futures reaches 10 times, and the interest rate may be increased by 50bp at the three meetings from May to July. But in fact, the Fed still faces multiple constraints, and the policy path after the sprint interest rate hike in the first half of the year is still facing great uncertainty. Under the benchmark scenario, the Federal Reserve will start "back-to-back" interest rate hikes in the first half of the year, raise interest rates by 50bp in the next two months, and raise the target range of the federal funds rate to 1.25-1.5%. In the second half of the year, depending on the performance of the economy and inflation, the Federal Reserve will choose to raise interest rates by about 2 times, and raise interest rates by 175bp seven times in the whole year.
The Fed will shrink the table more quickly than the previous round, but we need to pay attention to the possibility of early suspension. Under the benchmark scenario, the Federal Reserve will start to shrink the table in May. The above round will be started at a double speed, reducing $20 billion in the first month, increasing by 25 billion month by month, and finally reaching the rate of reducing $95 billion per month (60 billion treasury bonds + 35 billion MBS). The reduction process may last for 2-3 years, with a total reduction of 2.2-3.6 trillion, equivalent to 25-40% of the current scale. It should be noted that if the rapid interest rate hike by the Federal Reserve leads to a more than expected decline in the US economy, the Federal Reserve may suspend the normalization process of monetary policy in advance.
Under the constraints of the external environment, China's structural policy tools will play a greater role. The narrowing or even upside down of China US interest rate spread will have a direct impact on China's cross-border capital flows and RMB exchange rate, and then affect China's monetary policy, real economy and capital market. The recent intensive introduction of a series of monetary policy tools shows that in the face of external tight constraints, the central bank prefers to support the real economy through structural monetary policy "wide credit" than using the aggregate tool "wide money", in which commercial banks are an important transmission hub.
