The Paper reporter Hou Jiacheng
There are still four weeks until the next Fed interest rate meeting. What data do we need to pay attention to? What will be the extent of the next four interest rate hikes this year and ? Where will the federal funds rate be by the end of the year?
Recently, more and more Federal Reserve officials have joined the team of aggressive interest rate hikes, publicly mentioning the possibility of raising interest rates by 75 basis points in July, and many of them are former "dovish" policymakers.
On June 29, local time, Cleveland Fed President Loretta Mester (FOMC voting committee) said that if economic conditions remain unchanged when the Fed decides on monetary policy in July, she will advocate a 75 basis point interest rate hike.
On Tuesday, New York Fed President John C. Williams also echoed Federal Reserve Chairman Powell’s previous views on raising interest rates at the July meeting, believing that a 50 or 75 basis point interest rate increase will obviously become a debate Focus.
Meanwhile, some other policymakers, including Federal Reserve Governor Michelle Bowman and Governor Christopher Waller, have previously expressed support for a 75 basis point interest rate hike next month. Minneapolis Fed President Kashkari (Neel Kashkari, once a major "dove") also said that he may support a 75 basis point interest rate increase next month. Chicago Fed President Charles Evans said it was "reasonable" to consider raising interest rates again by 75 basis points. San Francisco Federal Reserve Bank President Mary Daly also said last week that she is prepared to support another 75 basis points interest rate hike at the next meeting.
Cao Yubo, a researcher at the Financial Markets Department of the China Construction Bank Head Office, told The Paper that recently, the Federal Reserve has continued to convey its increasingly hawkish stance to the market, especially on June 22, when Fed Chairman Powell hinted at a Senate hearing that there would be more Possibility of earning 100 BPs. Many other Federal Reserve officials have also made similar remarks, which shows that the Federal Reserve has a deep understanding of the seriousness of the current inflationary pressure in the United States and is firmly committed to reducing inflation.
Regarding the rate hike that will be decided by the Federal Open Market Committee (FOMC) on July 28, Beijing time, the market generally expects to raise interest rates by 75 basis points. According to CME Group's "Fed Watch" tool, the market currently predicts an 85.6% probability that the Federal Reserve will raise interest rates by 75 basis points in July, and a 14.4% probability of raising interest rates by 50 basis points.
Many economists interviewed said that the path of interest rate hikes in July still depends largely on changes in June's inflation data. On July 13, Beijing time, the United States will release June CPI data.
Hu Jie, a professor at Shanghai Advanced Institute of Finance at Shanghai Jiao Tong University, told The Paper that the effect of each interest rate hike by the Federal Reserve will generally be reflected in the CPI 5-6 months later. The effects of three rate hikes since March have yet to be fully felt. Therefore, the subsequent data changes of CPI will directly affect the intensity of subsequent interest rate hikes.
"So everyone will wait with bated breath for July 13. If the next announced CPI increase is still around 8.6%, the high probability will be 75 basis points; if it is significantly lower than 8.6%, the high probability of an interest rate hike in July is 50 basis points Of course, there is a possibility that the CPI on July 13 will be significantly higher than 8.6%, and the intensity of interest rate hikes will be higher, but I personally think this possibility is very small," Hu Jie said.
Wang Jinbin, executive deputy secretary and deputy dean of the Party Committee and deputy dean of the School of Economics at Renmin University of China, also told The Paper that the current high prices of global bulk commodities and supply chain problems caused by the escalation of the geopolitical conflict between Russia and Ukraine are still causing greater harm to the United States. There is strong inflationary pressure; there is a possibility of raising interest rates by 75 basis points next time, but changes in price data still need to be observed.
"Even if it raises interest rates by 75 basis points, the Fed should be very cautious. Under normal circumstances, after raising interest rates by 75 basis points, another increase of 75 basis points will have a certain impact on the entire market." Wang Jinbin said.
Cao Yubo said that the current market compares the Fed's response to inflation to that of the Volcker period in the 1980s, that is, it sharply raises interest rates by tolerating the economic recession in the short term, and then stimulates the economy after the primary conflicting pressure of inflation is relieved.Especially after the Federal Reserve unexpectedly raised interest rates by 75 basis points at the June interest rate meeting, the market's acceptance of the Federal Reserve's faster interest rate hikes has been increasing. Therefore, Powell's view that he does not rule out a 100 basis point interest rate increase has also quickly digested by the market.
"Judging from market performance, after the June Federal Reserve interest rate meeting , the market quickly adjusted the path for later interest rate hikes and remained relatively stable before more data was released." Cao Yubo said that the Fed's subsequent interest rate hike path will be mainly Depends on inflation trends. If U.S. inflation growth remains high and shows no signs of falling, the Fed may further accelerate its interest rate hikes. In particular, the June CPI data may directly affect the actions taken at the July Fed interest rate meeting. If the CPI growth falls back in June, the current market expectation of a 75 basis point interest rate hike will most likely be realized. Otherwise, the possibility of the Federal Reserve raising interest rates by a massive 100 basis points cannot be ruled out.
What will be the path of interest rate hikes throughout the year?
’s forecast for the federal funds rate at the end of this year, the market is currently betting on a maximum of 3.5%-3.75%, which is slightly lower than the predicted peak of 3.75%-4% in the dot plot released by the Federal Reserve on June 16.
htmlThe June dot plot shows that the Fed's benchmark interest rate will rise from the current target range of 1.5%-1.75% to 3.25%-3.5%; thus, the next four meetings will raise interest rates by a total of 175 basis points. On Tuesday, Williams said he supports raising the Fed's benchmark interest rate to 3% to 3.5% later this year and that the path to 2023 will depend on the data - despite current financial market bets on rates Between 3.5% and 4% next year is "a completely reasonable forecast at this time."
Hu Jie said that the next three interest rate hikes (in September, November and December respectively) should currently be 50, 25-50 and 25-50 basis points; the specific implementation still depends on changes in CPI. In this way, the benchmark interest rate at the end of the year will roughly fall between 3.25-3.75%.
Wang Jinbin said that by the end of this year, it should be a high probability event that the Federal Reserve’s federal funds rate will exceed 3%.
Cao Yubo said that judging from the average forecast of various institutions compiled by Reuters , the current probability of the Federal Reserve raising interest rates by 75 basis points in July is 76%, and the probability of raising interest rates to a range of 3.50%-3.75% by the end of the year is 50.6%. %, the interest rate hike paths for the next four meetings are 75 basis points, 50 basis points, 50 basis points, and 25 basis points.
Cao Yubo also said that after rapid interest rate hikes, along with a fall in inflation, the pressure on the U.S. economy is expected to be reflected in economic data at the end of this year, and the Federal Reserve may end its tightening monetary policy next year.
Editor in charge: Zheng Jingxin Picture editor: Hu Mengqi
