Overview of the central bank's observation:
The tone of the Fed's policy makers has been stronger, downplaying the view that the interest rate hike cycle has ended and will be cut in 2023.
More importantly, FAP seems to be relieved to allow US financial assets to fall and US unemployment rate to rise, provided that this means US inflation can be controlled.
Interest rate market believes that the probability of hiking rate 75 basis points in September is 100%. The tone of the Jackson Hall Economic Policy Seminar and the September Fed meeting showed that the possibility of a 75 basis point rate hike is high, although Fed Chairman Powell said at the July Fed meeting that it is unlikely to raise interest rates to this level in the future. The U.S. inflation report (CPI) in August (CPI) better than expected and a strong August non-farm jobs report provide reasons for aggressive tightening of policies after abandoning forward-looking guidance and instead taking a data-dependent stance.
August 29 - Kashkali (Minneapolis Fed Chairman) said that the weakness in the U.S. stock market shows that investors understand the importance of FOMC in reducing U.S. inflation.
Aug 30 – Bostic (Atlanta Fed Chairman) commented in an article published on the Atlanta Federal Reserve Bank website: “If the upcoming data clearly shows that inflation has begun to slow, then we have reason to retract the 75 basis point rate hike implemented by the Commission in recent meetings.” We will wait and see how this data came about. ”
Williams (Chairman of the New York Fed) said that given that “we need some restrictive policy to slow down demand, but we haven’t done that yet”, further aggressive rate hikes are still necessary.
August 31 – Mester (Chairman of the Cleveland Fed) downplayed the Fed’s claim that the Fed will cut interest rates in early 2023.
html September 1 – Bostic (Chairman of the Atlanta Fed) pointed out that in order to reduce inflation, the Fed still has “something to do” and “we must slow down economic growth.”September 7 – Bakin (Chairman of the Richmond Fed) bluntly stated that the Fed must raise interest rates to a level that limits economic activity. “You have to lower inflation expectations so that there are enough restrictions on the economy to reduce inflation.” "In addition, he added: "Our goal is to keep the real interest rate at a positive level, and my intention is to keep the interest rate at this level until we are really convinced that inflation has been curbed." ”
Mester warned of “premature announcement of victory over the inflation monster” and said “we must raise interest rates at the current level. "
Fed Vice Chairman Brainard said interest rates will remain high for a long time because "as long as inflation can be lowered, we will be in this state." "In addition, "monetary policy will require restrictive policies for a period of time to provide confidence that inflation is falling to its target level. "
Daly (San Francisco Fed Chairman) pointed out that the Fed is trying to plan a "slowdown". By raising interest rates, the Fed is "restored price stability and slowing down the job market, housing market and economic growth, but the way in which this can still move us forward. ”
September 8 – Powell (Federal Chairman) promised further positive action in the near future, noting that “we need to act now, as we have been doing, direct and powerful.” "The goal of reducing inflation to 2% today is the top priority of the Federal Open Market Commission," said Brad (St. Louis Fed Chairman) in an article published on the St. Louis Federal Reserve Bank website. "I think we already have a good plan," said Evans (Chengo Fed Chairman). There is a good chance we will reach 75 basis points in September," but "I haven't made up my mind yet. I know we need to raise interest rates to a much higher level than we are now. ”
Brad commented that the Federal Reserve tends to raise interest rates by 75 basis points at its September meeting after the U.S. jobs report was released in August.
Waller (Federal Director) said, "The reason for continuing to cancel the easing policy is still clear."
market underestimates the hawkish position of varying degrees
By examining the differences in borrowing costs of commercial banks in a specific period of time in the future, we can measure whether the Euro dollar contract is digested. Figure 1 below shows the difference in borrowing costs for contracts in September 2022 and December 2022 to measure the direction of interest rates by the end of this year.
Since September, the possibility of the Federal Reserve hike rate has risen rapidly. On August 1, the market expected a 25 basis point rate hike by the end of 2022, and the probability of a 25 basis point rate hike is 34%. Now, the 100 basis point rate hike has been completely discounted by , and the probability of a 25 basis point rate hike for the fifth time is 4%.
As has been happening in the past few weeks, federal funds rate futures are still more aggressive than Euro dollar contract spread in the short term. The interest rate market expects a 75 basis point probability hike in September at 118% (a 100% chance of hike in 75 basis points and a 18% chance of hike in 100 basis points), while the possibility of further hike in November and December is completely discounted. Prior to the Jackson Hall Economic Policy Seminar, it is expected that by the end of 2022, the main interest rate will rise to 3.552%; the current conversion result is 4.208% at the end of the year.
