[Main View]: 2. The possibility of the Federal Reserve hike of interest rates by 75 basis points in September is not ruled out, and the median federal funds rate at the end of 2023 is slightly lower than 4%; [Text]: Event: On August 26, Federal Reserve Chairman Powell delivered a

Author of this article: Zheng Houcheng, Source: Zheng Houcheng Macro Research, Original title: Commentary of the 2022 Jackson Hall Annual Meeting: The Fed's "Agree" Rate hike path may face a "triple impact", and the time point for interest rate cuts is likely to fall in 2023"

[Main Views]:

2. The possibility of the Fed's interest rate hike 75 basis points in September , the median federal funds rate is slightly lower than 4% by the end of 2023;

3. Fed's "Agree" rate hike path may face a "triple impact";

4. 2023 In the first half of 2023, the US CPI may be at -2.10% to 5.30% year-on-year, with an average of around 2.10%;

5. The WTI crude oil futures price in the first half of 2023 is likely to record negative growth year-on-year;

6. The 4th dimension is back on the interest rate cut point of the Fed's typical interest rate cut cycle;

7. The Fed's interest rate cut point is likely to fall in the second half of 2023, with the probability of the third quarter greater than the fourth quarter;

8. The "rate cut" effect benefits major assets, but the US macroeconomic downward continues to pressure international oil prices.

[Text]:

Event: On August 26, Federal Reserve Chairman Powell delivered a speech at the Jackson Hall Global Central Bank Annual Meeting.

Comments:

1. Powell's speech is "hawkish" with a strong "hawkish" color. On the issue of interest rate hikes, he emphasized that "persistence is victory"

At the 2022 Jackson Hall Global Central Bank Annual Meeting, Federal Reserve Chairman Powell explained the Federal Reserve's "hawkish" position in a "shorter, more focused and more direct" way compared with previous years, which is specifically reflected in the following five points.

first, recorded 8.50% year-on-year in the US CPI in July, which was located in the background of an all-time high. Powell pointed out that "the current top priority of Federal Open Market Committee (FOMC) is to reduce inflation to 2% target." From the term "top priority", it can be seen that the goal of "reducing inflation to 2%" ranks first in the Federal Reserve's target system. In response, Powell pointed out that "price stability is the responsibility of the Federal Reserve and the cornerstone of our economy." Objectively speaking, effectively controlling inflation is one of the important goals of central banks around the world's monetary policy. In this way, a considerable number of countries including New Zealand , Canada, the United Kingdom, etc. implemented the " inflation target system ", that is, central bank clearly sets the primary goal of price stability.

second, Powell believes that "the current high inflation in the United States is indeed a product of strong demand and limited supply." In this context, given that "the Fed's tools mainly play a role in aggregate demand", "we need to use our tools strongly to better balance demand and supply", "we are taking powerful and rapid measures to adjust demand to make it more compatible with supply", and "we obviously still have work to do in adjusting demand to make it more compatible with supply." The implication of these statements is that "strong" total demand must be suppressed through tightening monetary policies including "strong" interest rate hikes, after all, it is difficult to increase supply in the short term. Third, Powell pointed out that "reducing inflation may require the economy to maintain a period of continuous lower than the trend growth rate", and in addition, "labor market conditions are likely to weaken," and believes that "these are the unfortunate costs of reducing inflation." In other words, to reduce the inflation rate, it is worth it even if the economic growth rate is declining and the continued sluggish, and the unemployment rate is rising. Powell's view is supported by the "pain index" proposed by American economist O'Ken in the 1970s. Oken believes that the pain index is the sum of inflation and unemployment. The higher the number, the higher the pain. If the slight increase in the unemployment rate is exchanged for a sharp drop in inflation, it is worth it from the perspective of the pain index.

fourth, current federal funds target interest rate is between 2.25% and 2.50%. This range is also the estimated range for the long-term expected level of federal funds rate in Economic Forecast Summary (SEP).However, Powell pointed out at the annual meeting that "even after reaching the expected levels of long-term neutral interest rates, it is still not the time to stop or suspend," because "the current inflation level is far higher than 2%, and the job market is extremely tight."

No. 5, Review of the US inflation trend since the 1970s, Powell learned three lessons. Among them, the first lesson is that "the central bank can and should assume the responsibility of achieving low and stable inflation." That is to say, the current Fed must not only reduce the pressure on high inflation, but also maintain it at a low level. As for how low it is, Powell believes that "reducing inflation to a low and stable level" and "this 'normal' continues until last spring", while the US CPI from March to May 2021 was 2.60%, 4.20% and 5.0% year-on-year respectively in the month. In other words, Powell believes that inflation levels below 4.20%, or even below 5.0%, are "normal". The third lesson is "we must insist on hike rates until the effort is done." This sentence expresses the Federal Reserve's determination and confidence in "persistence is victory" on inflation.

2. The possibility of the Federal Reserve hike of interest rates by 75 basis points in September is not ruled out. The median federal funds rate at the end of 2023 is slightly lower than 4%

We try to roughly infer the Fed's "consensus" interest rate hike path from Powell's speech. first looks at the starting point, and we think the Fed is likely to raise interest rates by 75 basis points in September. There are two main basis for this judgment.

first, Powell pointed out at the annual meeting, "I said at the time (July rate meeting) that it might be appropriate to have another unusually large rate hike at the next meeting." This suggests to a certain extent that a 75 basis point rate hike will be raised in September.

second, 7 US CPI reading of 8.50% year-on-year that month, although it was 0.60 percentage points lower than June, it is still at a historical high. More importantly, when the US CPI recorded 8.60% year-on-year in May, the Federal Reserve raised interest rates by 75 basis points on June 15; when the US CPI recorded 9.10% year-on-year in June, the Federal Reserve raised interest rates by 75 basis points on July 27. If the US CPI remained at around 8.50% year-on-year in August, the Federal Reserve is likely to raise interest rates by 75 basis points. It is worth pointing out that we believe that the year-on-year of the US CPI in August is likely to decline on the basis of July, and is likely to be around 8.0%. If this judgment is valid, two signals will be sent to the market: , one is that is in the context of a two-month downward trend, the year-on-year downward trend of the US CPI that month was basically established; , the other is that reduces the possibility that the Federal Reserve will raise interest rates by 75 basis points in September.

, then look at the end point, , the Federal Reserve believes that the median federal funds rate at the end of 2023 is slightly below 4%. This judgment is based on Powell's annual meeting that "the latest personal forecasts from committee members for the June SEP show that by the end of 2023, the median federal funds rate will be slightly below 4%. In other words, Fed members believe that by the end of 2023, the range of the target interest rate for the U.S. federal funds is 3.75% to 4.0%. The current target interest rate range for federal funds is 2.25%-2.50%. From the current 2.50% movement to 4.0% by the end of 2023, there are three paths:

The first path is that the target interest rate of federal funds will rise rapidly, exceeding 4.0%, and then fall back to 4.0%;

The second path is that the target interest rate of federal funds will rise all the way, reaching 4.0% by the end of 2023; The third path is that the target interest rate of federal funds will quickly reach 4.0% in the short term, and then remain unchanged at 4.0% until the end of 2023. We believe that the second and third paths are more likely to be implemented.

Look at the process again, Let’s see how the federal funds target interest rate is going up to 4.0% by the end of 2023. With the assumption of a 75 basis point hike in September to 3.25% and an upward reaching 4.0% by the end of 2023, the federal funds target rate has only 75 basis points upside. Before the end of 2023, the Fed can choose to directly raise interest rates by 75 basis points to 4.0%, or choose to raise interest rates by 50 basis points and 25 basis points respectively, and also choose to raise interest rates by 3 times each of 25 basis points.We believe that the probability of the first situation being present is lower, while the second and third situations depend on the situation of US inflation: if US inflation is still at a relatively high level at that time, the probability of the second situation being present is higher; if US inflation is at a relatively low level at that time, the probability of the third situation being present is higher. But whatever the situation occurs, it is in line with Powell's statement that "to some extent, as monetary policy positions further tighten, it may become appropriate to slow down the pace of interest rate hikes."

Finally, look at the outlook. will not cut interest rates quickly after the target interest rate of the federal funds reaches the high point of this cycle, which is 4.0% at the end of 2023, and it is highly likely that the Federal Reserve will remain at this high point for some time. This judgment is based on Powell's point of view that "restoring price stability may require a restrictive policy stance for a period of time. Historical records have strong warnings about premature easing policies." This indicates that the rate cut will not come too early. If the above assumption is valid, the Fed's "consensual" interest rate cut is likely to be after the first quarter of 2024.

3. The Fed's "consensual" interest rate hike path may face a "triple impact"

or above. Based on Powell's speech at the annual meeting of the Global Central Bank of Jackson Hall, we portray the end point of the Fed's interest rate hike and the path to reach the end point, and look forward to the time of interest rate cuts. is worth pointing out that or above is just the "ideal interest rate policy path" in the Federal Reserve's mind. In real economic life, there are three situations: "breaking" the Fed's expected goals and an ideal path to achieve the goals.

The first case is that Powell pointed out that "our decision at the September meeting will depend on the overall data obtained and the evolving prospects". In other words, the Federal Reserve's interest rate decision depends on the economic data at that time and their predictions of future economic data. If the performance of current economic data and the macroeconomic trends are very different from expectations, the Federal Reserve may not raise interest rates according to the above "rate hike path".

The second situation is that the sudden extreme event of may force the Federal Reserve to respond passively, and then deviate from the predetermined "rate rate hike path". On December 17, 2015, the Federal Reserve launched the interest rate hike process, but in August, September and October 2019, the cumulative interest rate cut was 1.0 percentage points for three consecutive times. In this regard, the Federal Reserve's explanation is to carry out "preventive interest rate cuts" and "insured interest rate cuts." However, with the advent of the new crown pneumonia epidemic, the target interest rate of federal funds has been "reduced to the end", falsifying the so-called "preventive interest rate cut" and "insured interest rate cuts".

The third situation is that The Federal Reserve may misjudgment the macroeconomic situation and inflation trends, and then make wrong interest rate decisions. In mid-2021, Powell repeatedly believed that the United States would not have a surge in inflation, but the reality is that the U.S. inflation rate has been rising since the beginning of 2021 and has recorded a historical high of 9.10% in June 2022. In June 2022, Powell said at a forum held by ECB , "We clearly recognize that we know very little about inflation." Coincidentally, US Treasury Secretary Yellen also publicly stated, "An unexpected huge impact has pushed up energy and food prices, and the supply chain bottleneck has seriously affected the US economy." "I don't fully understand this."

We believe that the above three situations may occur in the second half of 2022 and 2023, especially the first situation. At the same time, it is not ruled out that unexpected events and the possibility of the Federal Reserve misjudging the macroeconomic situation and inflation trends again. Therefore, there is a possibility that the Fed will deviate from its "consensual rate hike path."

4. In the first half of 2023, the month-on-year of the US CPI may be -2.10% to 5.30%, with the average of 2.10%

. Against the background of "the top priority of the current Federal Open Market Committee is to reduce inflation to 2%", the year-on-year trend of the US CPI in that month has become the focus of the global macroeconomic, and correctly judging the year-on-year trend of the US CPI in that month has become a crucial event in the capital market.

We believe that the year-on-year of the US CPI in that month is closely related to the trend of international oil prices, or in other words, the trend of international oil prices is the dominant factor in the year-on-year trend of US CPI in that month. There are three basis for this judgment. first, The correlation coefficient of the US CPI year-on-year and WTI crude oil futures price in that month was 0.54, between 0.30 and 0.80, which is a moderate correlation.

Second, objectively, the correlation coefficient of 0.54 is not high and does not reach a high correlation. Does this mean that it is impossible to judge the year-on-year trend of the US CPI that month from the year-on-year trend of WTI crude oil futures prices? From the graphical trend, the year-on-year high (low point) of the WTI crude oil futures price may be ahead of the year-on-year high (low point) of the US CPI for the same month, or may be synchronized with the year-on-year high (low point) of the US CPI for the same month. The reason why the correlation coefficient between the two is only 0.54 is because there is a year-on-year high (low point) of WTI crude oil futures price or ahead of the year-on-year high (low point) of the US CPI that month, which lowers the year-on-year correlation coefficient of the US CPI that month and the year-on-year WTI crude oil futures price. For example, in October 2004, the WTI crude oil futures price reached a temporary high of 74.97% year-on-year, but the US CPI that month reached a temporary high of 4.70% in September 2005, with a lag time of 11 months. For example, in July 2013, the WTI crude oil futures price reached a temporary high of 19.15% year-on-year, but in June 2014, the lag time was also 11 months.

Third, among the 12 sub-items of the US CPI, the standard deviation of the energy sub-items that are highly correlated with crude oil is 10.74, ranking first among the 12 sub-items, indicating that the energy sub-item has the greatest volatility and is the dominant term of the US CPI.

recorded 37.46% year-on-year in July, which is 269.57% in March 2021, down 232.11 percentage points, 9.10% in June is likely to be the high point of this round of US inflation. The main argument that supports our judgment is that against the backdrop of Powell's proposal that "reducing inflation may require the economy to maintain a period of continuous lower than the trend growth rate", international oil prices are likely to be under pressure in the later period, which will drive the US CPI to continue to decline year-on-year that month. Based on this, we insist on the judgment that "the high point of inflation in developed economies is likely to be in the 2nd-3 quarters" in the "Highlights of inflation in developed economies are likely to be in the 2nd-3 quarters, and the main tone of "flexible and moderate" may run through the 1st-3 Monetary Policy Implementation Report (20220214)" that "the high point of inflation in developed economies is likely to be in the 2nd-3 quarters".

Since the month-on-year of the US CPI is closely related to the trend of international oil prices, what is the year-on-year trend of international oil prices when the month-on-year of the US CPI is in a negative range? The answer is that since March 1984, the US CPI has only 11 monthly data in the negative range that month. The corresponding WTI crude oil futures prices have recorded negative growth year-on-year, with an average of -44.08%.

Let’s look at it from another perspective. With the international oil prices recording negative year-on-year, how did the US CPI perform year-on-year that month? It is estimated that since March 1984, during the period when WTI crude oil futures prices recorded negative growth year-on-year, the average year-on-year of the US CPI for that month was 2.10%, of which the maximum was 5.30% in February 1991, and the corresponding WTI crude oil futures prices were -7.10% year-on-year; the minimum was -2.10% in July 2009, and the corresponding WTI crude oil futures prices were -51.83% year-on-year.

That is to say, once the WTI crude oil futures price recorded negative growth year-on-year in the first half of 2023, the US CPI is likely to be between -2.10% and 5.30% year-on-year in that month, with an average of around 2.10%. It is worth pointing out that the level around 2.10% is the target level of Fed interest rate policy regulation, because Powell pointed out that "the current top priority of the Federal Open Market Committee is to reduce inflation to 2% target." If this judgment is valid, considering that Powell pointed out that "restoring price stability may require maintaining a restrictive policy stance for a period of time" and "historical records have strong warnings for premature easing policy", it is expected that the Fed will cut interest rates in the second half of 2023.

5. WTI crude oil futures price in the first half of 2023 is likely to record negative growth year-on-year

Our above judgment is based on the negative growth year-on-year in the first half of 2023. The WTI crude oil futures price recorded negative growth year-on-year in the first half of 2023, and the international oil price in the first half of 2023 will be lower than the first half of 2022. We believe that against the background of high international oil prices in 2022, international oil prices in the first half of 2023 are likely to be lower than in the first half of 2022. What is strongly supported by our judgment is that Powell's statement on the monetary policy of the United Reserve at the Jackson Hall annual meeting is hawkish, which means that the Federal Reserve's interest rate hikes in the later period are relatively strong, which has a negative impact on 's global economy . In particular, Powell proposed that "reducing inflation may require the economy to maintain a period of continuous lower than the trend growth rate", indicating that the Federal Reserve weakens total demand through interest rate hikes, which means that the US macroeconomic growth rate is likely to continue to be sluggish in the later period, which will drag down the global macroeconomic. Under the assumption that "demand determines international oil prices", international oil prices are likely to continue to be under pressure in the first half of 2023.

Of course, there is also a phenomenon that weakens our judgment. first, Middle East Oil-producing countries prefer high oil prices. Recently, Saudi Arabia sent a signal that OPEC may reduce production, which has played a certain boost to international oil prices. Second, In the context of the "Russia-Ukraine conflict", Europe reduced its imports of Russian crude oil, resulting in a soaring energy prices in Europe. Objectively speaking, the above two have played a role in boosting international oil prices in the short term, but unlike the market's view, we believe that the "Russia-Ukraine conflict" suppresses international oil prices in the medium and long term: , The "Russia-Ukraine conflict" has caused negative news for the global economy, , , In the context of the war's financial tightness, Russia is likely to increase crude oil exports. Both of the above have negative consequences for international oil prices. In addition, even if OPEC's production cuts push up international oil prices in the short term, the demand side continues to be under pressure against the backdrop of the Federal Reserve hikes and driving the European Central Bank's interest rate hikes, which is likely to drag down international oil prices.

Based on the above analysis, we believe that the WTI crude oil futures price in the first half of 2023 is likely to record a negative year-on-year, and insist that the US CPI year-on-year is likely to be between -2.10% and 5.30% in that month, with the average of around 2.10%.

Six and 4 dimensions back to the interest rate cut point of the Fed's 5 typical interest rate cut cycle

1984, the Federal Reserve has experienced five typical interest rate cut cycles: the first round of was launched on September 20, 1984, and was lowered by 25 basis points to 11.50% on August 9, 1984, and was lowered by 25 basis points to 11.25%, and the time interval between the last interest rate hike and the first interest rate cut cycle ; the time interval between the last interest rate hike and the first interest rate cut cycle was 42 days; the second round of was launched on June 6, 1989, and was lowered by 25 basis points to 9.81% on May 17, 1989, and was lowered by 20 days. The time interval between the last interest rate hike and the first interest rate cut was 9.56%. ; The third round of was launched on January 3, 2001, and was reduced by 50 basis points to 6.0% on May 16, 2000, and the interval between the last rate hike and the first rate cut was 7 months and 17 days; the fourth round of was launched on September 18, 2007, and the reduction was 50 basis points to 4.75% on June 29, 2006, and the interval between the last rate hike and the first rate cut was 2 months and 19 days; the fifth round of was launched on August 1, 2019, and the reduction was 25 basis points to 2.25% on December 20, 2018, and the interval between the last rate hike and the first rate cut was 7 months and 12 days. It can be seen from the five rounds of interest rate cut cycles that the time interval between the last interest rate hike cycle and the first interest rate cut during the interest rate cut cycle is 20 days, and the maximum is 7 months and 17 days. Below we will look back at the time of the interest rate cut in the Fed's typical five rounds of interest rate cut cycle from four dimensions.

From the ISM manufacturing PMI, the Fed's interest rate cuts: When launched the first round of interest rate cuts on September 20, 1984, the US ISM manufacturing PMI was 50.0, and fell to 49.90 five months later, which is below 's boom-bust line ; when the second round of interest rate cuts started on June 6, 1989, the US ISM manufacturing PMI was 47.30, which was already on the boom-bust line at that time. The next operation was 2 months; when the third round of interest rate cuts was launched on January 3, 2001, the US ISM manufacturing PMI was 42.30, and it had been running offline for 6 months; when the fourth round of interest rate cuts was launched on September 18, 2007, the US ISM manufacturing PMI was 51.0, and fell to 49.0 three months later; when the fifth round of interest rate cuts was launched on August 1, 2019, the US ISM manufacturing PMI was 49.10, which was the first time that the 35 months later. It can be seen from the five interest rate cut cycle that when each interest rate cut cycle starts, that is, when the first interest rate cut is reduced, the number of times the US ISM manufacturing PMI is above the boom and bust line is 2 times, the number of times the "crossing the line" boom and bust line is 1 time. From the perspective of time distribution, the time point of the first interest rate cut was distributed between the first five months after the US ISM manufacturing PMI fell below the boom and bust line to the last six months after the boom and bust line.

From the compound indicator of "Total U.S. sales year-on-year-on-year-on-year-on-year-on-year-on-year-on-Federal interest rate cuts: When the third round of interest rate cuts started on January 3, 2001, this compound indicator was -4.06 percentage points, which had been running in the negative range for 8 consecutive months, and a positive value was recorded for one month during the period; when the fourth round of interest rate cuts started on September 18, 2007, this compound indicator was 2.10 percentage points, which was the first month that left the negative range. It had previously been running in the negative range for 14 months, and a positive value was recorded for one month during the period; when the fifth round of interest rate cuts started on August 1, 2019, this compound indicator was -5.12 percentage points, which had been running in the negative range for 10 consecutive months. The compound indicator of "Total U.S. sales year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-month-indices in the United States, indicating that the growth rate of sales in the United States is lower than the growth rate of inventory, that is, the growth rate of supply is higher than the growth rate of demand, indicating that American companies are generally in the passive inventory replenishment stage, that is, the recession stage in the economic cycle. In summary, the negative value of the compound indicator "Total U.S. sales year-on-year-on-year-on-year-on-year-on-year of US inventory" is a prerequisite for the Federal Reserve to cut interest rates.

From the long-term and short-term spread , that is, the compound indicator of "3-month US bond interest rate-10-year US bond interest rate" sees the point of the Fed's interest rate cut: When the first round of interest rate cuts started on September 20, 1984, this compound indicator was -1.72 percentage points, and the long-term and short-term interest rate spread did not invert; when the second round of interest rate cuts started on June 6, 1989, this compound indicator was 0.15 percentage points, and the long-term and short-term interest rate spread was the first. The second inverted; when the third round of interest rate cuts was launched on January 3, 2001, this compound indicator was 0.12 percentage points, which has been inverted for seven consecutive months; when the fourth round of interest rate cuts was launched on September 18, 2007, this compound indicator was -0.53 percentage points. Although it was not inverted, it was inverted for 10 consecutive months from August 2006 to May 2007; when the fifth round of interest rate cuts was launched on August 1, 2019, this compound indicator was 0.36, and the long-term and short-term interest rate spread lasted for 4 months. In summary, except for the first cycle, the other four cycles have inverted long-term and short-term interest rate spreads when or before interest rate cuts. The time range is from 14 months before interest rate cuts to the month when interest rate cuts.

From the US CPI year-on-year and core CPI year-on-year in that month, the Fed's interest rate cuts point: When the first round of interest rate cuts started on September 20, 1984, the US CPI year-on-year and core CPI year-on-year and core CPI year-on-year respectively; when the second round of interest rate cuts started on June 6, 1989, the US CPI year-on-year and core CPI year-on-year and core CPI year-on-year respectively. 50%; When the third round of interest rate cuts was launched on January 3, 2001, the year-on-year and core CPI of the US CPI of the same month were 3.70% and 2.60% respectively; when the fourth round of interest rate cuts was launched on September 18, 2007, the year-on-year and core CPI of the US CPI of the same month were 2.80% and 2.10% respectively; when the fifth round of interest rate cuts was launched on August 1, 2019, the year-on-year and core CPI of the same month were 1.70% and 2.40 respectively. In summary, judging from the previous five rounds of interest rate cuts, the US CPI year-on-year and core CPI year-on-year in that month is less than 5.20% year-on-year in that month. Judging from the past three interest rate cut cycles, the US CPI was lower than 3.70% year-on-year in the month, while the US core CPI was lower than 2.60% year-on-year in the month, so there is the conditions to initiate a interest rate cut.

7. The time point of the Federal Reserve's interest rate cut is likely to fall in the second half of 2023. The probability of 3 in the quarter is greater than that of 4th quarter

Powell pointed out at the annual meeting, "Our decision at the September meeting will depend on the overall data obtained and the evolving prospects." As we all know, macroeconomic trends are the ultimate basis for the Federal Reserve's interest rate decisions. Therefore, it is crucial to accurately judge the US macroeconomic trends and predict macroeconomic data. Below we will analyze the economic data trends in four dimensions and predict the time of this round of Federal Reserve interest rate cuts.

From the perspective of the US manufacturing PMI, the US Markit manufacturing PMI recorded 51.30 in August, down 0.90 percentage points from the previous value, and the decline was 0.40 percentage points wider than in July. According to the current trend, under the premise of the Federal Reserve hike of 75 basis points in September, it is expected that the US Markit manufacturing PMI will fall below the boom-bust line in October. In July, the new order index of the US ISM manufacturing PMI fell below the boom-bust line after 24 months. Powell pointed out that "we are taking strong and rapid measures to adjust demand to make it more compatible with supply." Referring to the trend of the US Markit manufacturing PMI, it is expected that the US ISM manufacturing PMI will likely accelerate its downward trend in the later period. We believe that the US ISM manufacturing PMI is likely to fall below the boom and bust line in the fourth quarter. According to our conclusions in the sixth part of this article, it is expected that the Federal Reserve will cut interest rates around April 2023.

From the inventory cycle of the United States, the total U.S. sales in 6 recorded 14.48% year-on-year, down 0.25 percentage points from the previous value, while the total U.S. inventory in June recorded 18.48% year-on-year, up 0.54 percentage points from the previous value; the compound indicator of "Total U.S. sales year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year-on-year The compound indicator entered a negative range in March 2022 and has been in a negative range for four consecutive months, indicating that the US macroeconomic showed signs of pressure. In addition, considering that the US inventory sales ratio in June recorded 1.30%, which is in a historical low range, which means that the US macroeconomic is currently in the passive inventory replenishment stage. According to our previous review conclusions, it is expected that the Federal Reserve will cut interest rates around May 2023.

From the perspective of long-term and short-term interest rate spreads, 's three-month US Treasury yield was 2.97% on August 29, while the 10-year US Treasury yield was 3.12%, which is 15 basis points different. In September, the Federal Reserve raised interest rates by 50 basis points or 75 basis points, which is likely to lead to a three-month inversion with the 10-year U.S. Treasury yield. The inverted interest rate spreads on the long and short ends means that the US macroeconomic has entered a recession stage. According to our previous review conclusions, the Federal Reserve is expected to cut interest rates by November 2023.

From the perspective of the US CPI year-on-year that month, we believe that the WTI crude oil futures price in the first half of 2023 is likely to record a negative year-on-year, and adhere to the judgment that "the US CPI in the first half of 2023 is likely to be between -2.10% and 5.30% year-on-year, with the average of around 2.10%. According to our previous review conclusions, it is expected that the Federal Reserve will cut interest rates in the first half of 2023.

In summary, the starting point of this round of Fed interest rate cut is likely to be between April 2023 and November 2023. Considering that the Fed is likely to be in a wait-and-see stage in the second quarter, we believe that the Fed is likely to cut interest rates in the third and fourth quarters of 2023. Among them, the probability in the third quarter is greater, and the latest no more than the fourth quarter, otherwise the US macroeconomic will face greater pressure. Through the above analysis, we believe that the Fed's "consensual" interest rate hike path mentioned in the third part of this article may not be realized.

8. The "rate reduction" effect of "class interest rate cuts" benefits major assets, but the downward trend of the US macroeconomic continues to pressure international oil prices

. In this round of interest rate hike cycle, interest rate hikes 25 basis points in March, interest rate hikes 50 basis points in May, and interest rate hikes 75 basis points in June and July. It is worth pointing out that the 75 basis points rate hike is very rare in the history of the Federal Reserve's interest rate hike, and the 75 basis points rate hikes are unique in the two consecutive rates: Since September 27, 1982, the largest rate hike in the Federal Reserve was in March 1984, with a rate hike of 1.13 basis points, followed by November 1994, June and July 2022, with a rate hike of 75 basis points.

In the above article, we believe that the Fed is likely to raise interest rates by another 75 basis points in September.Since then, according to Powell's statement that "to some extent, as the monetary policy stance further tightens, it may become appropriate to slow down the pace of interest rate hikes", the rate hikes are expected to gradually slow down after October. This is different from the previous two interest rate hike cycles: in the interest rate hike cycle from June 30, 2004 to June 9, 2006, the Federal Reserve raised 17 consecutive interest rates by 4.25 percentage points; in the interest rate hike cycle from December 17, 2015 to December 20, 2018, the Federal Reserve also raised 2.50 percentage points in the interest rate hike cycle from 25 basis points. Unlike the previous two cycles, the Fed's interest rate hike in this round is characterized by "low at both ends and high in the middle". This means that the extent of interest rate hikes in the later period is gradually narrowing. Once this situation occurs, the market's interpretation is that the time when the Fed's interest rate hikes have passed. This is a situation that was not seen in the previous two rounds of interest rate hike cycles. Once the market interprets this way, various types of assets will rebound. For example, after the Federal Reserve raised interest rates by 75 basis points in July, the market believes that the Federal Reserve will "slow down the pace of interest rate hikes", so commodity, equity market and bond market rebounded. It can be expected that after 75 basis points in September, commodity, equity market and bond market are likely to rebound again. We call the above phenomenon the "rate reduction" effect.

Powell pointed out that "the latest personal forecasts of committee members for June SEP show that by the end of 2023, the median federal funds rate will be slightly below 4%. The target rate for federal funds at 4.0% is 1.50 percentage points higher than the high of the previous cycle. After 75 basis points in September, there is still a total of about 75 basis points of interest rate hike space left. In the second half of the interest rate hike, although the pace of interest rate hikes slowed down, it should be noted that the U.S. federal funds rate will be running at a relatively high level by then. Even a slight interest rate hike of 25 basis points will further increase the cost of capital in the real economy, and its marginal suppression of demand for the real economy is not weaker than the 50 basis points in the early stage of interest rate hikes. In other words, even if the Federal Reserve "slows down the pace of interest rate hikes" in the later period, the US macroeconomic growth rate is likely to continue to be under pressure. Against this background, even if we benefit from the "rate-like hike" effect, international oil prices and commodity prices led by copper are likely to be affected by the macro economy, and it is difficult to rise and is likely to continue to be under pressure. On the contrary, international gold prices and my country's interest rate bonds benefited from the "interest rate cut" effect and the downward trend of the US macroeconomic growth rate. They are expected to perform well, with the upward probability greater than the downward probability.

[Risk Warning]: 1.OPEC increased its efforts to reduce crude oil production to push up international oil prices; 2. The intensification of the "Russia-Ukraine conflict" has led to a surge in energy prices in Europe.

This article is from the securities company research report selected