In the early morning of the 20th, Beijing time, the Federal Reserve concluded its two-day interest rate meeting. The statement after the meeting showed that the Federal Open Market Committee (FOMC) decided to maintain the target range of the federal funds rate at 2.25%-2.50%, in line with market expectations. .
However, at this meeting, the Federal Reserve released a strong signal to cut interest rates. Not only did it delete the wording "patience" in the meeting statement, but the dot plot of interest rate expectations showed that 8 of the 17 members expected to cut interest rates in 2019. , 7 of whom expected to cut interest rates twice. Wang Qing, chief macro analyst of
Oriental Jincheng, predicted in an interview with a reporter from the Beijing News that the Federal Reserve may launch a "preventive" interest rate cut in the second half of the year. According to the dot plot, the Fed expects to cut interest rates once in 2020, while the previous dot plot showed that it will raise interest rates once next year. This reversal in interest rate expectations indicates a significant change in the Fed's policy stance, which is tilting towards launching the first rate cut in more than a decade.
After the Federal Reserve announced its interest rate decision, all three major U.S. stock indexes experienced short-term jumps. On June 20, both Shanghai and Shenzhen stock markets showed an upward trend. As of the close, the Shanghai Composite Index rose 2.38% to close at 2987.12 points. It rose to an intraday high of 2997.39 points, approaching the 3000 point mark; the Shenzhen Component Index and the ChiNext Index rose 2.34% and 1.91% respectively.
On June 20, State Administration of Foreign Exchange spokesperson Wang Chunying responded to reporters’ questions about the foreign exchange receipts and payments in May, saying that my country’s foreign exchange receipts and payments were stable and improving in May, and the foreign exchange market remained stable.
Stay on hold
Raised interest rates four times last year and none this year
Since the beginning of this year, the Federal Reserve's interest rate hike policy has clearly shifted. In 2018, the Federal Reserve raised interest rates a total of 4 times, once every quarter, with a cumulative increase of 100 basis points to a range of 2.25%-2.50%. Since 2019, there has not been a single interest rate hike and this range has always remained unchanged. In fact, since the beginning of this round of interest rate hikes in December 2015, the Federal Reserve has raised interest rates a total of nine times by the end of 2018. The market believes that the Federal Reserve may press the "pause button" on interest rate increases this year, and may even turn to interest rate cuts.
At this meeting, the resolution to maintain the target range of the federal funds rate unchanged was passed with a voting ratio of 9:1. Only St. Louis Fed President James Bullard voted against it. Bullard is known as the "Fed Dove". He prefers to cut interest rates by 25 basis points this time.
The FOMC statement noted that information received since the May meeting showed that the labor market remains strong and economic activity is growing at a moderate pace. Employment growth has averaged solidly in recent months, with headline inflation and inflation excluding food and energy both below 2% year-on-year.
The Committee decided to maintain the target range for the federal funds rate at 2.25%-2.5%. The Committee continues to view continued expansion of economic activity, strong labor market conditions, and inflation close to the Committee's symmetric 2 percent objective as the most likely outcomes, but uncertainty about this outlook has increased. Given these uncertainties and subdued inflationary pressures, coupled with a strong labor market and inflation close to its symmetric 2 percent objective, the Committee will closely monitor the impact of the latest information on the economic outlook and will take appropriate measures to sustain the economic expansion.
Wang Qing told a reporter from the Beijing News that the Fed’s choice to “stand still” this time is in line with previous market expectations. The main reason is that the current Fed policy adjustment has strong data-driven characteristics, and the recent US inflation level continues to be lower than the policy target. Economic growth shows a weakening trend. Inflation has been below the 2.0% target most of the time this year, which is in stark contrast to 2018 when interest rates continued to rise. In terms of economic growth, the leading US manufacturing and service PMIs have also shown a downward trend this year. It indicates that the U.S. economic growth will face greater pressure in the second half of the year. As a result, although the current U.S. job market remains strong, low inflation and weak growth prospects no longer support the Federal Reserve's continued tightening of monetary policy.
Expected to increase
Experts: The Federal Reserve may start to cut interest rates in the second half of the year
An obvious change in this policy statement is that the Federal Reserve has deleted the wording about "patience". In many previous statements, the Federal Reserve has stated that it will "remain patient" with future interest rate adjustments. ".
In the early morning of the 20th, Beijing time, the Federal Reserve concluded its two-day interest rate meeting. The statement after the meeting showed that the Federal Open Market Committee (FOMC) decided to maintain the target range of the federal funds rate at 2.25%-2.50%, in line with market expectations. .
However, at this meeting, the Federal Reserve released a strong signal to cut interest rates. Not only did it delete the wording "patience" in the meeting statement, but the dot plot of interest rate expectations showed that 8 of the 17 members expected to cut interest rates in 2019. , 7 of whom expected to cut interest rates twice. Wang Qing, chief macro analyst of
Oriental Jincheng, predicted in an interview with a reporter from the Beijing News that the Federal Reserve may launch a "preventive" interest rate cut in the second half of the year. According to the dot plot, the Fed expects to cut interest rates once in 2020, while the previous dot plot showed that it will raise interest rates once next year. This reversal in interest rate expectations indicates a significant change in the Fed's policy stance, which is tilting towards launching the first rate cut in more than a decade.
After the Federal Reserve announced its interest rate decision, all three major U.S. stock indexes experienced short-term jumps. On June 20, both Shanghai and Shenzhen stock markets showed an upward trend. As of the close, the Shanghai Composite Index rose 2.38% to close at 2987.12 points. It rose to an intraday high of 2997.39 points, approaching the 3000 point mark; the Shenzhen Component Index and the ChiNext Index rose 2.34% and 1.91% respectively.
On June 20, State Administration of Foreign Exchange spokesperson Wang Chunying responded to reporters’ questions about the foreign exchange receipts and payments in May, saying that my country’s foreign exchange receipts and payments were stable and improving in May, and the foreign exchange market remained stable.
Stay on hold
Raised interest rates four times last year and none this year
Since the beginning of this year, the Federal Reserve's interest rate hike policy has clearly shifted. In 2018, the Federal Reserve raised interest rates a total of 4 times, once every quarter, with a cumulative increase of 100 basis points to a range of 2.25%-2.50%. Since 2019, there has not been a single interest rate hike and this range has always remained unchanged. In fact, since the beginning of this round of interest rate hikes in December 2015, the Federal Reserve has raised interest rates a total of nine times by the end of 2018. The market believes that the Federal Reserve may press the "pause button" on interest rate increases this year, and may even turn to interest rate cuts.
At this meeting, the resolution to maintain the target range of the federal funds rate unchanged was passed with a voting ratio of 9:1. Only St. Louis Fed President James Bullard voted against it. Bullard is known as the "Fed Dove". He prefers to cut interest rates by 25 basis points this time.
The FOMC statement noted that information received since the May meeting showed that the labor market remains strong and economic activity is growing at a moderate pace. Employment growth has averaged solidly in recent months, with headline inflation and inflation excluding food and energy both below 2% year-on-year.
The Committee decided to maintain the target range for the federal funds rate at 2.25%-2.5%. The Committee continues to view continued expansion of economic activity, strong labor market conditions, and inflation close to the Committee's symmetric 2 percent objective as the most likely outcomes, but uncertainty about this outlook has increased. Given these uncertainties and subdued inflationary pressures, coupled with a strong labor market and inflation close to its symmetric 2 percent objective, the Committee will closely monitor the impact of the latest information on the economic outlook and will take appropriate measures to sustain the economic expansion.
Wang Qing told a reporter from the Beijing News that the Fed’s choice to “stand still” this time is in line with previous market expectations. The main reason is that the current Fed policy adjustment has strong data-driven characteristics, and the recent US inflation level continues to be lower than the policy target. Economic growth shows a weakening trend. Inflation has been below the 2.0% target most of the time this year, which is in stark contrast to 2018 when interest rates continued to rise. In terms of economic growth, the leading US manufacturing and service PMIs have also shown a downward trend this year. It indicates that the U.S. economic growth will face greater pressure in the second half of the year. As a result, although the current U.S. job market remains strong, low inflation and weak growth prospects no longer support the Federal Reserve's continued tightening of monetary policy.
Expected to increase
Experts: The Federal Reserve may start to cut interest rates in the second half of the year
An obvious change in this policy statement is that the Federal Reserve has deleted the wording about "patience". In many previous statements, the Federal Reserve has stated that it will "remain patient" with future interest rate adjustments. ".CICC's research report believes that the previous neutral "remain patient" wording was replaced by "will take appropriate measures" to maintain economic expansion, which is more inclined to cut interest rates. This statement basically opens the door for future interest rate cuts. door.
The dot plot of interest rate expectations released after the meeting also showed that 8 of the 17 FOMC members expected to cut interest rates in 2019, 7 of whom expected to cut interest rates twice to a range of 1.75%-2.00%, and the other 1 person expected to cut interest rates once. to the range of 2.00%-2.25%. However, other members have certain differences on the outlook for interest rates. Eight officials predict that interest rates will remain unchanged in the range of 2.25%-2.50% in 2019, and one person supports raising interest rates once. The previous dot plot in March showed that no FOMC member expected to cut interest rates in 2019.
At the press conference after the announcement of the interest rate resolution, Federal Reserve Chairman Powell said that this was the first time that the dot plot signaled an interest rate cut, and the possibility of the Federal Reserve taking more easing measures had increased to a certain extent. However, he also emphasized that the dot plot is not a prediction and whether to cut interest rates still depends on data and risk conditions.
The Federal Reserve revised its interest rate guidance, further increasing the market's expectations for an interest rate cut. The Chicago Mercantile Exchange's Fed Watch tool "FedWatch" shows that the current probability prediction of the Federal Reserve's interest rate cut in July has risen to 100%, of which 62.6% has a probability of 25 interest rate cuts. basis points, there is a 37.4% probability of a 50 basis point interest rate cut.
In this regard, Wang Qing predicts that the Federal Reserve may launch a "preventive" interest rate cut in the second half of the year, with the main goal of stabilizing market expectations and easing the economic downward momentum. However, there are also views that the Federal Reserve will not cut interest rates within the year.
Zhou Maohua, an analyst at the Financial Markets Department of China Everbright Bank, said that the reasons for the Federal Reserve to cut interest rates this year are still not sufficient. First, the risk of deterioration of the dual objectives remains low. The U.S. unemployment rate remains low, the number of new non-farm payrolls is well above the long-term trend, the overall job market still has momentum for improvement, and there are no worries about a trend slowdown in prices during the year. Secondly, judging from the U.S. job market, household financial leverage, and loose financial and monetary environment, financial institutions are overall stable, and the risk of the U.S. economy falling into recession is still low.
Market reaction
The US dollar fell and the RMB strengthened
After the Federal Reserve announced its interest rate decision, the market's short-term reaction was more obvious. All three major U.S. stock indexes experienced short-term jumps, but ultimately the fluctuations were small and no significant gains were shown at the close. The Dow Jones Industrial Average rose only 0.15% on Wednesday, the Nasdaq rose 0.42%, and the S&P 500 rose 0.30%
On the U.S. dollar, after the interest rate decision was announced at 2 p.m. ET on Wednesday, the U.S. dollar index fell sharply in the short term within a few minutes. It fell from above 97.40 to around 97.08. In late trading in New York on Wednesday, the U.S. dollar index fell 0.4% to 97.26, hitting a new low in the past week. Thursday continued the previous day's decline, falling below the 97 mark.
While the U.S. dollar weakened, the yuan strengthened. After the news was announced, offshore RMB showed a certain rise. The offshore RMB exchange rate against the US dollar rose from above 6.90 to around 6.89, once rising by more than 100 points. On the 20th, the onshore RMB and offshore RMB continued their gains, rising above 6.86 one after another. The onshore RMB closed at 6.8505 against the US dollar at 16:30, a sharp increase of 535 basis points from the previous trading day. It once rose to 6.8426 in the afternoon, an increase of nearly 600 basis points.
Wang Qing said that the Federal Reserve's policy stance is tilted towards the "dovish" side, and the policy differences between the US and European monetary authorities have narrowed, and the upward momentum of the US dollar will be restrained to a certain extent. This will reduce the depreciation pressure on the RMB against the US dollar and help the RMB currency basket exchange rate index to remain basically stable. In terms of the trend of the renminbi, it is unlikely that the U.S. dollar index will rise significantly in the future. In view of the fact that maintaining the basic stability of the RMB exchange rate at a reasonable and balanced level is still an important policy goal of the central bank, the RMB exchange rate will most likely fluctuate widely around the 6.80 line during the year, the exchange rate flexibility is expected to expand moderately, and the possibility of unilateral trends can basically be ruled out.
Zhou Maohua said that the Fed’s interest rate cuts have limited impact on the RMB exchange rate. Taking into account factors such as stable domestic economic fundamentals, a balanced international balance of payments, a low probability of a sharp weakening of the U.S. dollar during the year, a rich policy toolbox for the central bank to maintain policy stability, and stable market expectations, the overall RMB exchange rate is expected to remain stable against a basket of currencies. Fluctuate around a reasonable equilibrium level.
html On June 20, Wang Chunying said that in recent years, the RMB exchange rate formation mechanism has been continuously improved. In the process of increasing the flexibility of the two-way floating exchange rate, the risk management awareness and adaptability of market entities have significantly improved, which is fully reflected in the changes in foreign exchange receipts and payments data in May. With the increasing maturity and rationality of my country's foreign exchange market, it can better cope with various tests in the future.China’s focus
The interest rate cut has begun. Will my country follow up?
Since the Federal Reserve turned "dovish" in its tone at the beginning of this year, the curtain of interest rate cuts around the world seems to have begun. The Reserve Bank of India has cut interest rates three times this year, by 25 basis points in February, April and June, to 5.75%. The Monetary Policy Committee of the Reserve Bank of India also announced its decision to adjust the stance of monetary policy from neutral to loose.
Following India, many countries have recently joined the interest rate cut camp, including Malaysia, New Zealand, the Philippines, Australia and Russia. Among them, on May 9, the Philippine Central Bank announced that it would lower the benchmark interest rate by 25 basis points to 4.5% starting from the 10th of that month. This was the country’s first interest rate cut in more than six years.
With various countries’ monetary policies shifting, will the Central Bank of China be affected? Wang Qing said that the convergence of monetary policies among the world's major economies has become clearer, and the momentum for a easing shift has been basically established. This also provides more room for the People's Bank of my country to make timely adjustments to its monetary policy in the second half of the year, making it less difficult to stabilize growth.
Zhou Maohua said that the Fed's policy shift to "dovish" can easily trigger the market's expectations for the central bank's easing policy. However, the interest rate gap between China and the United States currently remains high. The interest rate difference between China and the United States' 2-year and 10-year treasury bonds has reached 114 and 121 basis points respectively. Historical highs. It is expected that China's central bank policy will still be dominated by me, and its prudent tone will not change. It will make pre-adjustments and fine-tuning based on the changing trends of domestic employment, prices, and liquidity. On the current basis, the probability of significant easing is low.
"Central bank policies do not necessarily follow the turn to easing in Europe and the United States. The central bank's implementation of excessively loose monetary policies can easily lead to the accumulation of local risks and is not conducive to supply-side structural reform." Zhou Maohua said.
Beijing News reporter Gu Zhijuan editor Wang Jinyu proofread Xue Jingning
html On June 20, Wang Chunying said that in recent years, the RMB exchange rate formation mechanism has been continuously improved. In the process of increasing the flexibility of the two-way floating exchange rate, the risk management awareness and adaptability of market entities have significantly improved, which is fully reflected in the changes in foreign exchange receipts and payments data in May. With the increasing maturity and rationality of my country's foreign exchange market, it can better cope with various tests in the future.China’s focus
The interest rate cut has begun. Will my country follow up?
Since the Federal Reserve turned "dovish" in its tone at the beginning of this year, the curtain of interest rate cuts around the world seems to have begun. The Reserve Bank of India has cut interest rates three times this year, by 25 basis points in February, April and June, to 5.75%. The Monetary Policy Committee of the Reserve Bank of India also announced its decision to adjust the stance of monetary policy from neutral to loose.
Following India, many countries have recently joined the interest rate cut camp, including Malaysia, New Zealand, the Philippines, Australia and Russia. Among them, on May 9, the Philippine Central Bank announced that it would lower the benchmark interest rate by 25 basis points to 4.5% starting from the 10th of that month. This was the country’s first interest rate cut in more than six years.
With various countries’ monetary policies shifting, will the Central Bank of China be affected? Wang Qing said that the convergence of monetary policies among the world's major economies has become clearer, and the momentum for a easing shift has been basically established. This also provides more room for the People's Bank of my country to make timely adjustments to its monetary policy in the second half of the year, making it less difficult to stabilize growth.
Zhou Maohua said that the Fed's policy shift to "dovish" can easily trigger the market's expectations for the central bank's easing policy. However, the interest rate gap between China and the United States currently remains high. The interest rate difference between China and the United States' 2-year and 10-year treasury bonds has reached 114 and 121 basis points respectively. Historical highs. It is expected that China's central bank policy will still be dominated by me, and its prudent tone will not change. It will make pre-adjustments and fine-tuning based on the changing trends of domestic employment, prices, and liquidity. On the current basis, the probability of significant easing is low.
"Central bank policies do not necessarily follow the turn to easing in Europe and the United States. The central bank's implementation of excessively loose monetary policies can easily lead to the accumulation of local risks and is not conducive to supply-side structural reform." Zhou Maohua said.
Beijing News reporter Gu Zhijuan editor Wang Jinyu proofread Xue Jingning
