Events
On May 4 local time, the Federal Reserve announced its interest rate resolution, raising interest rates by 50bp from now on, and announced that it would reduce its balance sheet from June, which was basically within market expectations. Powell's speech boosted the market. The NASDAQ index and the S & P 500 index closed up more than 3%, the highest 10-year US bond interest rate fell by 10bp, and the US dollar index fell.
Abstract
1. Policy resolution: the interest rate meeting in May raised the interest rate by 50bp for the first time, which was mainly due to higher than expected inflation and strong labor market. Starting from June, the table was reduced by $47.5 billion per month, and starting from September, the table was reduced by $95 billion per month. The main purpose of the table reduction is to increase the real financing cost in line with the interest rate increase and curb the total demand and inflation expectations.
2. Statement of the meeting: the keynote of the statement of the meeting is stable, the choice of interest rate increase and table reduction basically meets the expectation, and the expression of new economic risks and supply chain risks. There has been an increase in the space on economic risks. First, it has played down the risk of economic recession in the United States, second, the risk of the new Russian Ukrainian conflict and the Chinese epidemic on the global supply chain, and third, it has emphasized paying high attention to the risk of inflation, indicating that the economic uncertainty has increased, which means that the Fed's future policies will remain flexible, and the Fed's future tightening pace may adjust with the economic data.
3. A reporter's question: Powell answered a reporter's question. The overall tone of hawks was less than expected, calmed concerns about economic slowdown and runaway inflation, strengthened confidence in future economic growth, and weakened the negative impact of Fed tightening on the economy.
Before the interest rate meeting in May, the volatility of the financial market intensified, the yield of 10-year US bonds exceeded 3%, and US stocks adjusted continuously. Powell's speech dispelled the market's concern about stagflation and ruled out raising interest rates by 75bp, boosting the market's risk appetite, which is reflected in the strength of both stocks and bonds and the weakening of the US dollar. U.S. stocks rebounded sharply from the basic flat. The 10-year interest rate of U.S. bonds once fell from 3.0% to 2.91%, and the dollar index fell.
4. Despite the short-term interest rate hike and table contraction, we believe that the pressure of high inflation in the United States will continue throughout the year, the unprecedented interest rate hike cycle will also become a source of fluctuations in the financial market, and the US bond interest rate will continue to rise driven by the real interest rate.
High inflation is accelerating the global interest rate hike cycle, and the era of global low inflation and low interest rates may be gone. The peace dividend, economic globalization dividend, demographic dividend and environmental cost dividend that supported global low inflation in the past are gradually fading. In the future, the four long-term factors of political and military structure, labor shortage, anti globalization and carbon neutrality will support the rise of inflation center, and the interest rate level will also rise.
The interest rate of 10-year US bonds may continue to break through upward. First, there is still action in technology. At present, the 10-year interest rate of US bonds has risen continuously, breaking the trend track since 1990. Second, the real interest rate pushed the US bond interest rate upward. The 10-year real interest rate of US bonds is expected to rise by more than 1%. On the premise of relatively stable inflation expectations, it is expected to drive the US bond interest rate to continue to rise. Third, in terms of policy, the Federal Reserve starts to shrink the table, which will reduce the demand for long-term US bonds in the market and accelerate the rise of long-term interest rates.
Risk tip: the conflict between Russia and Ukraine intensifies the risk of economic stagflation; Liquidity crisis triggered by Fed tightening
