According to the CME Group’s Fed Watch Tool, the current interest rate futures market predicts that the probability of the Federal Reserve announcing a 75 basis point interest rate hike at tonight’s interest rate meeting is as high as 96.9%, and the remaining 3.1% is no longer ev

According to the CME Group's Federal Reserve Observation Tool (FedWatch Tool), the current interest rate futures market predicts that the probability that the Federal Reserve will announce a interest rate hike 75 basis points at tonight's interest rate meeting is as high as 96.9%, and the remaining 3.1% has even been Instead of forecasting a 50 basis point interest rate hike, we forecast a 100 basis point interest rate hike.

At 2 a.m. Beijing time on Thursday, June 15, the Federal Reserve will announce its June interest rate decision. At 2:30 a.m., Fed Chairman Powell will host a regular press conference. After the U.S. CPI data for May exploded last Friday, the Federal Reserve's interest rate meeting tonight has attracted much attention. Investors in the global market will focus on Powell to see whether he will take more powerful tightening actions to try to control the epidemic. Put out the "raging fire" caused by high inflation.

Judging from the expectations of the financial market, tonight's Federal Reserve decision will undoubtedly be the most dramatic in recent years.

Powell, who has been carefully communicating with the market on interest rate hikes during his four-year term, actually set a baseline scenario with the market of raising interest rates by 50 basis points in June and July respectively last month. However, this almost Everyone believed that the 50 basis point interest rate hike path was certain, but after the Fed entered the silence period one week before the interest rate meeting, it changed drastically.

As the U.S. consumer price index (CPI) unexpectedly rose to a new high since 1981 in May, the market's speculation that the Federal Reserve might raise interest rates by 75 basis points in a single move, which had been silent for a long time, quickly heated up this past weekend. All this reached a climax after the Federal Reserve's "mouthpiece" " Wall Street Journal " released the news on Monday.

From 50 basis points to 75 basis points, the Fed's interest rate hike expectations changed dramatically in just two trading days, and investors seemed to have completed a psychological change on this overnight. As for whether these "mouthpieces" broke the news and market forecasts are accurate - tonight, everything will obviously come to light...

html A list of investment bank forecasts before the 16-month resolution: a 75 basis point interest rate hike has become a mainstream bet

According to CME Group's FedWatch tool (FedWatch Tool) shows that the current interest rate futures market predicts that the probability of the Federal Reserve announcing a 75 basis point interest rate hike at tonight's interest rate meeting is as high as 96.9%, and the remaining 3.1% is no longer even predicting a 50 basis point interest rate increase, but a 100 basis point increase. base point.

In addition to the pricing of the interest rate market, the latest forecasts of a number of investment banks on the prospect of comprehensive interest rate hikes can also intuitively reflect the change in the market's bets on the Federal Reserve's interest rate hikes - the picture below is the major Wall Street major statistics compiled by Zerohedge, a well-known financial blog website. The bank’s latest interest rate hike forecast for the June resolution:

Among them, Barclays, Jefferies , JPMorgan Chase , Goldman Sachs and Nomura have all been intensively reported by various media in the past two days to raise interest rate forecasts - —Investment banks expect the Federal Reserve to raise interest rates by 75 basis points this week.

Overall, in this statistics, the number of investment banks predicting that the Federal Reserve will raise interest rates by 75 basis points tonight has exceeded the number that predict a 50 basis point increase. This does not rule out the possibility that some of these investment banks may not have time to revise their expectations. .

Barclays senior economist Jonathan Millar was one of the first industry insiders to predict a 75 basis point rate hike. He said again on Tuesday, "Generally speaking, if you are worried about the impact of your actions on financial markets, you will move cautiously - worried that you might break something. But in this case, it was worth breaking. We We are at a very critical moment, and their (Federal Reserve’s) credibility seems to have begun to be eroded.”

Although JPMorgan Chase and Goldman Sachs raised their interest rate expectations later than Barclays, they both completed it before the interest rate meeting this week. forecast adjustments. JPMorgan economist Michael Feroli suggested that long-term inflation expectations have unexpectedly risen and that Fed officials will not be constrained by the previous 50 basis points of interest rate hikes. He even believes that the Federal Reserve may raise interest rates by 100 basis points this time.

Jan Hatzius, chief economist at Goldman Sachs, also wrote in Monday's report, "We have revised our forecast to include 75 basis points of interest rate hikes in June and July. This will quickly adjust the funds rate to 2.25 -2.5% level, which is the FOMC median estimate of the neutral interest rate. We then expect a 50 basis point rate hike in September, a 25 basis point rate increase in November and December, and the final rate remains unchanged at 3.25-3.5%. "

Of course, although the call for a 75 basis point interest rate hike has become increasingly louder, some people in the industry still believe that there is still the possibility that the Fed will maintain its previous path of raising interest rates by 50 basis points tonight. Economists at Bank of America believe that the Federal Reserve will still adopt a 50 basis point rate hike as previously communicated to the market.

The rationale given by those in the 50 basis point camp is that while Powell has promised to remain flexible, a move of 75 basis points would mark a significant change in the way the chairman guides markets. Vincent Reinhart, chief economist at DreyfusMellon, said, "Chairman Powell hates surprising the market, and while 75 basis points seems possible, the likelihood of them sticking to their original plan is higher than the market currently thinks."

In addition to a June rate hike Amplitude: What else to watch out for tonight’s Fed decision?

There is no doubt that whether the Federal Reserve will raise interest rates by 50 basis points or 75 basis points in June will be the biggest highlight of tonight's interest rate meeting. No matter what choice the Fed makes, it will be a decision that will shock global financial markets. But in addition, there may be many other key suspense tonight on the night of the Federal Reserve's interest rate meeting, waiting for Powell and his colleagues to give answers...

The following is a list of tonight's resolutions listed by industry insiders Several other highlights that attracted much attention at night:

What will be the path for the Federal Reserve to raise interest rates in July and September?

Whether the Fed raises interest rates by 50 basis points tonight or 75 basis points, market participants will obviously be very concerned about what the Fed will do next:

If the Fed only raises interest rates by 50 basis points this month, will Powell release a 75 basis point hike next month? A signal from a basis point?

And if the Federal Reserve raises interest rates by 75 basis points this month, will this rate increase, which has not been seen since 1994, be a one-off or will it become the norm for interest rate increases this summer?

Under the leadership of Powell, who attaches great importance to communication with the market, the Fed has usually tried its best to fully communicate with the market to avoid triggering shocks in decision-making. And even if Powell may have to "slap himself in the face" this time and not continue the established path of raising interest rates by 50 basis points, he is expected to make new decisions on the path of future interest rate increases at the press conference after the meeting. guidance.

A week ago, people may have been uncertain about what the Fed would decide in September, and with the reshuffling of interest rate forecasts, what the Fed will do next month - Powell will also be "obligated" to re-explain... …

Judging from market pricing, the industry currently generally expects the Federal Reserve to raise interest rates by a cumulative 200 points at its three interest rate meetings from June to September. Among them, interest rates are most likely to be raised by 75 basis points tonight and in July, and by 50 basis points in September.

What changes will occur in the Fed’s interest rate dot plot?

As a quarterly resolution to release the interest rate dot plot and Quarterly Economic Outlook (SEP) report once a quarter, tonight's highly anticipated Fed interest rate dot plot will "meet" with investors after three months. This month’s dot plot is also expected to intuitively reflect several key messages to the market: How far will the Fed raise interest rates this year and next? Where will the Fed's current round of interest rate hikes end?

Currently, the results of a Bloomberg survey show that the median forecast for year-end interest rates on this month’s dot chart may rise to around 3%, 2 percentage points higher than current interest rates. At the same time, this will also move up significantly from the dot plot in March - in March this year, Fed officials' estimate of the year-end policy interest rate was only about 1.9%.

Many institutions have also raised their year-end interest rate expectations.JPMorgan expects the dot plot to reflect a faster pace of policy tightening, with the Fed's forecast for the federal funds rate showing a median end-of-year reading of 2.625%, well above the March forecast of 1.875%. Wells Fargo predicts that after the dot plot "moves up", the median interest rate at the end of the year will reach 2.875%, approaching the upper limit of the neutral interest rate range previously mentioned by the Federal Reserve.

In addition to the Fed's interest rate forecast for the year, tonight's dot plot is also expected to reflect where the Fed officials currently expect the end point of this round of interest rate hikes to be. Some market forecasts currently believe that as the Federal Reserve accelerates policy tightening, its key overnight interest rate may reach a peak of 4% in the middle of next year.

What is the Fed’s latest view on inflation?

Going back to the source, the main reason for the current high market expectations for the Federal Reserve's aggressive interest rate hike this week is the US May CPI data that exploded last Friday.

A report released by the U.S. Department of Labor on Friday showed that U.S. consumer prices rose 8.6% year-on-year in May, far exceeding expectations and further setting a 40-year high. Core consumer prices excluding food and energy rose 6.6% year-on-year. %, up 0.6% month-on-month, also higher than expected. This data completely breaks the White House statement that policymakers have controlled the soaring cost of living for Americans.

In this week’s interest rate decision, the Federal Reserve’s view on the current “peak inflation theory” will obviously also attract much attention. In this regard, investors need to pay close attention tonight to the inflation forecast for the next three years in the Quarterly Economic Outlook (SEP) report, and on the other hand, they need to pay close attention to Fed Powell's statement at the press conference.

Powell will participate in Congress’s semiannual hearings on June 22 and 23. Lawmakers are continuing to criticize high prices. Some analysts pointed out that before that, Powell's views on inflation at a press conference this week will be particularly important.

Is the Federal Reserve still confident about a soft landing for the economy?

A number of indicators recently released show that the momentum of the U.S. economy has begun to slow down, and as the Federal Reserve may raise interest rates more aggressively, Wall Street institutions are increasingly worried that the U.S. economy may fall into recession. Morgan Stanley CEO James Gorman recently said that with the Federal Reserve’s continued struggle with inflation, the possibility of a U.S. economic recession has reached a 50-50 chance.

Although Fed policymakers hope to achieve a so-called "soft landing" - cooling inflation without tipping the economy into recession, industry insiders now generally expect the Fed to have a low probability of success. This makes people expect to pay close attention to Powell's statement tonight to see whether the Fed is still confident about a soft landing for the economy...

The FOMC's latest economic forecast can also let people know that the committee is optimistic about the rise in the unemployment rate. to provide a level of reassurance about cooling the economy and inflation. The forecasts could show unemployment rising in 2023 and 2024 from the 3.5% forecast this year.

Thomas Costerg, senior U.S. economist at Pictet Wealth Management, said, "Right now, it sounds like it's all inflation, inflation, inflation, and we're going to read carefully whether they really believe that to calm inflation, the economy needs to go into recession. The recession signal is whether they think unemployment will rise in 2023 - that would be very bad information."

How many objections will there be to tonight's decision?

Finally, and will be a very interesting topic tonight is, how many objections will there be to tonight's decision to raise interest rates within the FOMC? Regardless of the final decision of the Federal Reserve Whether it chooses to raise interest rates by 50 basis points or 75 basis points, it seems that there is only a small probability of unanimous approval...

If the Federal Reserve chooses to raise interest rates by 50 basis points, then the two major players within the Federal Reserve who are most likely to vote against it will be The hawks are Fed Governor Waller and St. Louis Fed President Bullard; and if the Fed chooses to raise interest rates by 75 basis points like a "slap in the face", there is no guarantee that officials who have long advocated a 50 basis point interest rate hike will jump out and oppose it.

In addition, the two newly sworn-in Fed governors, Philip Jefferson and Lisa Cook, will take office in the 18-person Federal Reserve decision-making body for the first time. The market had previously believed that these two newly appointed governors were. The more dovish, new officials who are less familiar to people will also be watched for their monetary policy stance, said Andrew Hunter, senior U.S. economist at Capital Economics. of dovish members, but that becomes less important as inflation moves into the 8 era. But we suspect they will soon push back against the Fed's tightening plans. "

A new storm on Wall Street is coming? Hedge funds are fleeing

The latest monthly survey by Bank of America shows that hawkish central banks are still regarded by investors as the biggest tail risk facing the market, and the global economic recession is the second Two major risks. Obviously, these two major risks may be inseparable from the Federal Reserve's decision tonight - it is no wonder that many Wall Street people have already begun to stay on the sidelines...

At present, everyone is worried about the Federal Reserve. Various forecasts have been made for the rate hike, but no one knows what the outcome of the meeting will be, let alone what the impact will be on the market. However, professional investors obviously will not sit still - especially those quantitative funds. Exposure to stocks and other risky assets has been slashed.

After several weeks of selling, Deutsche Bank systematic positioning is two standard deviations below the average since data began in 2010. Goldman Sachs Group institutional brokerage data shows that hedge funds are also unambiguous. Monday's stock sell-off set a record for the fastest two-day reduction in holdings. The implied volatility of major assets was at the highest level before the Federal Reserve policy meeting in more than 10 years. level.

All of this proves that uncertainty is increasing on the eve of the Federal Reserve’s meeting on Wednesday. After the release of last Friday’s CPI data, the U.S. financial market has once again encountered a “double kill of stocks and bonds” situation, which has also caused more and more concerns. Industry insiders shudder - The S&P 500 index is now heading for its worst monthly performance since the market crash caused by the epidemic in 2020. The bond market is also in turmoil, with the 2-year U.S. Treasury yield soaring to its highest level since 2007. .

Benjamin Dunn, president of Alpha Theory Advisors, said, “We are at the bottom of the market and there is a lot of money, but everyone is fleeing, wanting to hold cash and fearing runaway inflation. Some doomsayers say policymakers won't be able to take the necessary steps to bring down inflation without completely destroying bond markets. "

Looking back at the history of the Federal Reserve, the number of interest rate hikes of 75 basis points or more is actually very few - only 28 times since the 1970s. And looking at the intensity of tightening policy, if the Fed has to raise interest rates by 75 basis points tonight Basis' big move, it is difficult not to associate it with the "Volcker Era" in the late 1970s and early 1980s, when Paul Volcker, then chairman of the Federal Reserve, In just over a year, the federal funds rate was significantly raised from 11% to over 20%. While this move successfully curbed inflation, it also led to a subsequent spike in the U.S. unemployment rate exceeding 10% and the economic recession from 1980 to 1982. .

In this regard, David Wilcox, the former director of research at the Federal Reserve and currently a senior fellow at the Peterson Institute for International Economics, predicts that Powell may, like Volcker, maintain a sharp focus on inflation, one of the Fed's policy goals. "If necessary, Powell will likely go down in history as version 2.0 of Paul Volcker ."