Events
The Federal Reserve announced its decision to raise interest rates from 1:00 a.m. to 5:00 a.m. on May 5 in Beijing; The table began to shrink in June. The initial scale of reduction was US $30 billion of treasury bonds and US $17.5 billion of MBS per month. Three months later, it reached the upper limit of US $60 billion of treasury bonds and US $35 billion of MBS per month.
Key investment points
Core view
In January and may, the Federal Reserve raised interest rates by 50bp and raised the federal funds rate target to 0.75% - 1%, which is in line with market expectations. The possibility of raising interest rate by 50bp will be discussed in the following meetings, but the subsequent interest rate increase by 75bp will not be considered. The eagle with pigeon does not show hawks beyond the imagination of the market, which will help alleviate market concerns.
2. The scale reduction began in June. The scale was reduced to $47.5 billion in the first three months, and the upper limit doubled to $95 billion three months later. Compared with the previous round of scale reduction (20172019), the pace and intensity of this scale reduction are faster and greater.
3. Powell expressed his confidence in the "soft landing" of the U.S. economy. Even under the repeated impact of the epidemic, the recovery of service consumption also reflects the resilience of U.S. economic activities. The strength of the job market is a great support for the tightening of the Federal Reserve. It will not trigger an economic recession due to the suppression of inflation, but will balance inflation and the economy.
4. At present, the focus of the Fed's policy is still anti inflation, and high inflation is an important reason for the Fed's tightening. Considering the complex causes of this inflation, the conflict between Russia and Ukraine, the impact of the epidemic and the interruption of the supply chain may make inflation continue to rise. Powell said that it will take some time to observe the evidence of specific inflation reduction and will not stop raising interest rates immediately after reaching the peak.
5. Although the most hawkish moment of the Federal Reserve has passed, it is still in the early stage of substantial interest rate hike and table contraction. There is still the possibility of substantial interest rate hike of 50bp in June and July. Coupled with the inflationary pressure brought by the escalation of the situation in Russia and Ukraine, the impact of the tightening impact of the Federal Reserve is still there, the US bond interest rate continues to fluctuate at a high level, and the suppression of the growth of overvalued value still needs attention.
6. As the inflection point of China's epidemic situation has emerged, the 429 Politburo meeting has once again consolidated the policy bottom, the external Federal Reserve has brought pigeons in the eagle, the sentiment of the A-share market has eased, and the oversold rebound in May is expected. However, whether it can reverse remains to be seen. We still need to pay attention to the effect of steady growth, the performance of A-share interim report and the subsequent tightening rhythm of the Federal Reserve.
Risk tips
(1) the epidemic situation worsened beyond expectation
(2) the steady growth policy is less than expected
(3) large scale outbreak of geo conflict
