For the Joint Reserve, the data before the FOMC meeting in March (only February inflation data can be seen) is not enough to change its concerns about inflation. Therefore, it is more likely to raise interest rates once in March and avoid policy mistakes caused by subsequent inflation exceeding expectations.
The second quarter is the time window for the Federal Reserve to observe inflation, economy and employment, and adjust the number and rhythm of its final interest rate hikes accordingly. The economy is a practical problem that restricts the continuous and rapid tightening of the Federal Reserve. At present, the global manufacturing cycle is falling, the Biden government's financial support is weakened, the U.S. economy is likely to slow down and enter the new economic normal after the epidemic. The rapid decline of inflation will reduce the necessity for the Federal Reserve to raise interest rates continuously.
The expectation guidance of the Federal Reserve in the early stage of tightening is excessive, which exceeds the actual situation. In the future, the expectation will gradually move closer to reality, and the overreacted interest rate increase will gradually return to normal. We believe that the US monetary policy will experience the transformation of tightening first and then loosening this year.
Risk tip: US inflation exceeded expectations, US Federal Reserve tightening exceeded expectations, and US fiscal stimulus exceeded expectations
