In the early morning of Thursday, Beijing time, the Federal Reserve's April interest rate meeting decided to maintain the federal funds rate of 2.25-2.5% unchanged, and lower the excess reserve ratio (IOER) from 2.40% to 2.35%, in line with market expectations.
But the point is that this meeting is the time when the Federal Reserve needs to give the most explanation to the outside world. After all, when the economy stabilizes, but the subsequent momentum is still unclear and the stock market is overly excited, the market is confused about the future. Against the backdrop of the US stock market hitting a new record high, core inflation continues to be sluggish. Does it prove the logic of future interest rate cuts? How does the Fed judge global risks at present?
As of the close, the Dow Jones Industrial Average fell 0.61%, the S&P 500 fell 0.75%, and the Nasdaq fell 0.57%.
U.S. stocks dive US dollar soared
Federal Chairman Jerome Powell said at a press conference after the meeting that the committee did not see the need for a rate hike or a rate cut (don’t see a strong case) and reiterated his patience with adjusting monetary policy.
expectation of interest rate cuts was "hit", dragging down US stocks overnight under pressure, and the Dow Jones closed down more than 160 points. The S&P 500 index also fell from the intraday all-time high, closing down 0.8%, with the energy and materials sectors leading the decline. traders predict that the probability of the Fed's interest rate cut by the end of the year is still as high as 60%.
U.S. bond yields emerged from the "V-shaped" trend during the session, and the 10-year U.S. bond yields rebounded to above 2.50%; the two-year and five-year U.S. bond yield curves returned to the "inverted" state.
10 year benchmark US Treasury trend chart
After the press conference, the US dollar index soared rapidly, non-US currencies fell one after another; gold prices plunged rapidly; most London base metals fell, and the main contracts for foreign agricultural product futures fell across the board. "From Powell's press conference, the Federal Reserve has no plans to cut interest rates later this year at all," said John Longsky, managing director and chief economist of Moody's
, in an interview with a reporter from Yicai. The statement of the
meeting reads that although the growth rate of consumer spending and commercial fixed investment slowed down in the first quarter, the US labor market remained strong, with the average employment increase in the past few months solid, the unemployment rate at a historical low, and the growth rate of economic activity was solid. However, the committee also noted that overall inflation and core inflation after excluding food and energy in the past December have fallen and are below the 2% target set by the Federal Reserve.
Former New York Stock Exchange trader and fund manager of thestreet.com Steve Gelfoy admitted: "In addition to further acknowledging the fact that inflation slows down, the information disclosed at the press conference is very limited."
The newly announced initial US GDP growth rate in the first quarter was 3.2%, which was significantly better than expected, sweeping away the previous Wall Street 's concerns that the US economy may fall into recession; the average profit growth rate of S&P 500 companies, which has announced financial reports, is 1%, far higher than the previous market forecast for the contraction of 4.2%. Economists predict that the U.S. non-farm jobs will increase by 180,000 in April, a figure that will be released on Friday.
Powell: Weak inflation is "temporary". Wall Street is cautious. Positive economic and corporate financial report data have caused the focus of the Federal Reserve to turn to weak domestic inflation again.
htmlOn April 29, the U.S. Department of Commerce released the U.S. personal consumption expenditure (PCE) data for February and March, which were delayed due to partial government shutdown at the beginning of the year, up 0.1% and 0.9% respectively.However, the core PCE data excluding food and energy, which was used as an inflation indicator by the Federal Reserve, remained flat month-on-month in March, with year-on-year growth falling from 1.7% in February to 1.6%, far less than the 2% increase in December last year, and hit a new low since September 2017.
US President Trump on Twitter on Thursday (April 30) accused the Federal Reserve of continuing to raise interest rates and implementing quantitative austerity policies amid sluggish inflation. Trump said that if the Fed can lower interest rates by one percentage point or implement some quantitative easing policies, the U.S. economy will achieve "rocket-like growth."
Powell repeatedly reiterated at the press conference that the Fed believes that the weak inflation at this stage is temporary (transitory), and the Fed still adheres to the 2% inflation target and expects the inflation rate to gradually return to this target range in the future.
Inflation rate continues to be lower than the Fed's forecast target, which may endanger the Fed's credibility and the continued economic growth.
Gelfoy said: "Powell obviously hopes that strong consumer spending in March can drive inflation to a certain extent. However, inflation in the automation era cannot be compared with the past - the Bank of Japan has been plagued by this problem for decades."
Longsky believes: "End of the time, the market will tell the Fed what to do. The FOMC committee itself knows that their past predictions are not very successful." Historical data provided by Moody's Capital Analysis shows that the annualized growth rate of the core PCE price index in the first quarter of this year was 1.7%, just the same as the average annualized growth rate in the past 25 years. In fact, looking at quarterly units, the annualized growth rate of US core PCE inflation has only occurred 25 times, with a probability of 25%. It has only exceeded 2.5% once in the past 25 years, which occurred in the third quarter of 2006.
Lonsky concluded: "In other words, perhaps the core inflation rate is 2%-2.5% that is the true 'temporality'."
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