This week’s most important event kicked off as scheduled. At 3 a.m. Beijing time on Thursday (December 14), the Federal Reserve announced that it would raise the federal funds benchmark interest rate range by 25 basis points to 1.25%-1.50%. This is the fifth rate increase since Yellen ended the zero interest rate policy in December 2015.
The Federal Reserve announced a 25-point interest rate hike as scheduled
After holding a two-day policy meeting this week, the Federal Reserve raised interest rates as widely expected, and also significantly raised its economic growth forecast for 2018.
In a decision released on Wednesday, Fed policymakers mostly supported the decision, although they signaled one fewer rate hike in 2019. Two regional Fed presidents voted against it, Philadelphia Fed President Evans and Minneapolis Fed President Neel Kashkari.
Voting ratio: The voting result of the Federal Reserve’s monetary policy decision was 7:2. Kashkari and Evans opposed the interest rate increase;
Interest rate hike expectations: The Federal Reserve’s forecast showed that It indicates that there will be three interest rate hikes in 2018, and the median expected federal funds rate at the end of 2019 is 2.7%;
Economic indicators: The Federal Reserve raised the median GDP growth forecast for this year and next, and the median unemployment rate forecast for 2017/18 was lowered.
Yellen talked a lot in her farewell performance: inflation, tax reform, employment, Bitcoin...
After the interest rate decision was announced, Federal Reserve Chairman Yellen held the last press conference during her term. Yellen reiterated that inflation is only temporary. Weakness and the view that the Federal Reserve will gradually raise interest rates also believe that Trump’s tax reform will boost the U.S. economy in the next few years.
The following are the key points of the speech:
Interest rate hike path: The interest rate hike reflects the gradual tightening of policies is reasonable, and further gradual interest rate hikes may occur in the next few years;
Tax reform plan: It is expected that tax reform will provide support for the future economy. However, the impact of tax reform is still uncertain;
inflation trend: ’s understanding of inflation factors is imperfect, and inflation levels are lower than the target or more “entrenched”;
asset valuation: higher valuations do not necessarily mean “overvaluation”, and stock market valuations are based on risk considerations Among;
Bitcoin: Bitcoin is a highly speculative asset, and the Federal Reserve is not seriously considering the use of a digital currency.
Market reaction: The U.S. dollar did not rise but fell, gold and silver carnival continued
After the Federal Reserve decision was announced, the U.S. dollar index fell nearly 20 points in the short term, the decline expanded to 0.6%, refreshing a one-week low to 93.49.
▲USD Index price 15-minute trend chart
For the gold market, it can be said that a major expected negative factor came without any surprise. After the "boots landed", the market really started.
The price of gold, which had fallen for four consecutive trading days, actually rose before the Federal Reserve's interest rate decision on Wednesday.
After the announcement of the interest rate decision, gold rose by nearly 10 US dollars in the short term, breaking through the 1250 mark. The intraday increase expanded to 1%, setting a new daily high.
▲15-minute spot gold price trend chart
Data shows that the most active gold futures contract on COMEX had a trading volume of 7,848 lots in one minute at 21:30 Beijing time, and the total contract value exceeded US$1 billion.
Silver rose 1.9%, once breaking through the $16 mark, setting a new one-week high.
▲ 15-minute trend chart of spot gold price
The subsequent impact of the Federal Reserve's interest rate hike on various assets
US dollar: It may have peaked
The "selling facts" operation regarding the Federal Reserve's interest rate hike seems to be the main pressure on the US dollar. This may sound counterintuitive, but consider that the dollar has gained 20% in two years, and it has been a "buy the rumor" strategy that supported the rally until the first rate hike. The peaking of U.S. dollar interest rate hikes is in line with expectations that the Federal Reserve may raise interest rates three times in 2018. Unless there is a steady increase in interest rate hikes, the dollar will weaken.
The widening deficit and the U.S. government's preference for a weaker dollar while the rest of the world favors a stronger dollar suggest there is disagreement over a falling dollar. Meanwhile, U.S. two-year Treasury yields accelerated, but the dollar remained weak.
Gold: It may bottom out
Judging from the historical trend, the periodic low of gold is very close to the time when the Federal Reserve raises interest rates. After the Federal Reserve raised interest rates, the price of gold began a sharp rebound. After the interest rate hike in December 2016, The performance is particularly obvious.
Market analyst Xiao Lei believes:
Gold itself is currently in a very weak fluctuation. Interest rate hikes may cause investors to further sell gold, but overall the price of gold has already Close to the production cost, physical supply and demand are basically balanced, and investment demand has basically been squeezed out by more than half. Therefore, the impact of interest rate hikes on gold should be short-lived. Instead, it may be due to all the bad news. At the end of the year, gold in India and China Demand is increasing, and there is demand for gold prices to bottom out after the interest rate hike.
RMB: It is more likely to continue sideways fluctuations in the range
Judging from the recent trend of the RMB, it has not been significantly affected by the imminent interest rate hike by the Federal Reserve. Traders pointed out that the demand for foreign exchange purchases by customers increased slightly in the middle of the month, but the settlement and purchase of foreign exchange by customers was relatively balanced. The RMB fell slightly driven by the rebound of the US dollar, but there are currently no signs of getting rid of the sideways fluctuations in the range.
The market has basically digested the expectation of the Federal Reserve to raise interest rates this week, but whether the U.S. tax reform is passed next year and the intensity of the reform, as well as the intensity of U.S. infrastructure investment, will affect the trend of the U.S. dollar index next year. Unless there is a major breakthrough in the U.S. dollar during the year, it is difficult for the RMB to have a direction, and self-operated institutions are more willing to increase trading volume.
2018 is a year of tightening
On Wednesday (December 13, Eastern Time), the Federal Reserve announced a 25 basis point hike in interest rates for the third time this year to 1.25%-1.5%. It will also be Janet Yellen's last major Fed meeting before Jerome Powell takes over as chairman.
Yellen has deftly steered the U.S. economy out of crisis, and Powell will continue her efforts as the Fed replaces more than $4 trillion in assets on its balance sheet as part of emergency stimulus measures.
The market expects Turkey The central bank will raise bank financing rates a day later to curb inflation. Policymakers have been battling President Recep Tayyip Erdogan, who believes that for some reason rising interest rates are causing inflation to rise. The Turkish lira fell to a record low against the dollar last month after Erdogan said bank officials were on the "wrong path."
At the same time, the Bank of Mexico also has the opportunity to raise interest rates. But uncertainty over Nafta's future negotiations could keep the central bank in jeopardy.
Despite short-term uncertainty, as the world economy enters its strongest cycle since 2011, Wall Street economists expect that investors will welcome the largest tightening of central bank monetary policy in the past decade in 2018.
Economists at Citigroup and JPMorgan Chase Average interest rates in advanced economies will rise by at least 1% in 2018, which may not sound like a lot, but it will be the largest increase in more than a decade.
Although there is still uncertainty about short-term monetary policy in other regions outside the United States, it is the consensus among economists that the world's major economies will enter a tightening cycle in 2018.
Goldman Sachs Group predicts: The Federal Reserve may not be the only central bank to raise interest rates next year. The United States has exceeded full employment, the United Kingdom has reached the tipping point of full employment, and the idle part (of labor) in the euro area is also shrinking; the Federal Reserve, the Bank of England, the Bank of Canada, the Bank of Sweden, and the Federal Reserve of New Zealand will all Interest rates may be raised to control inflation.
Citibank estimates: The average interest rate in developed countries next year will reach the highest level since 2008, rising by 0.4 percentage points to 1%. JPMorgan Chase predicts that the average interest rate will rise from 0.68% by the end of this year to 1.2%, a rate increase of more than 0.5 percentage points. Citibank expects the Federal Reserve and the Bank of Canada to raise interest rates three times next year, and the central banks of the United Kingdom, Australia, New Zealand, Sweden and Norway to raise interest rates once.
How will new Chairman Powell's "three fires" burn when he takes office?
Federal Reserve Chairman-elect Jerome Powell appears to be waiting for expected trillion-dollar U.S. tax cuts to take effect, with subdued wage growth and inflation bolstering his view that the economy is running out of momentum. When Trump chose Powell as the new chairman of the Federal Reserve, he also hoped that he could help the economy continue to recover through monetary policy regulation.
In statements throughout the year, and especially during his recent Senate confirmation hearings, Powell has been clear that he sees minimal risk of inflation prompting the Fed to raise interest rates faster than expected, and sluggish wage growth suggests workers are still waiting on the sidelines. Still haven’t entered the job market.
Data released last Friday further confirmed the above view: non-farm employment growth was faster than expected in November, but wage growth remained sluggish. The proportion of the employed working-age population has continued its steady recovery over the past six years and is close to its pre-crisis peak.
Powell told members of the U.S. Senate Finance Committee that although the unemployment rate is at a 17-year low of 4.1%, "we still do not feel that the economy is overheating or that the job market is significantly tighter." He also said that the Federal Reserve should gradually raise interest rates.
Analysts believe that Powell may be unexpectedly dovish after taking office in February, and tax cuts may be launched by then, but the Fed may choose to "stand on the sidelines."
Robin Brooks, chief economist at the Institute of International Finance, said:
Powell was once an investment banker rather than an economist focusing on a specific analytical framework. Before inflation picks up, he will lead "a more data-driven of the Fed, which at this moment means a more dovish Fed.” Brooks predicts that the Fed under Powell may only raise interest rates twice next year.
Powell's views are consistent with those of Trump and current Fed Chair Janet Yellen, and his adherence to this stance will play a key role as the Fed discusses whether and how to respond to the tax reform plan.
What is the impact of the Federal Reserve’s interest rate hike on China?
Finally, the editor will give you some popular science on how the Fed’s interest rate hike will affect our lives and assets.
1. US bonds will appreciate;
This is a good thing for friends who hold US assets.
2. China's RMB will have certain depreciation pressure;
As US dollar assets appreciate, then the RMB will have depreciation pressure. Friends who have some financial knowledge must understand this.
3. Friends who want to buy a house loan should pay attention!
The Federal Reserve’s repeated interest rate hikes mean that the possibility of the People’s Bank of China raising interest rates is also increasing (although there is currently no pressure on the People’s Bank of China to raise interest rates, the pressure to raise interest rates will accumulate and continue to increase). For those of you who have already taken out a loan to buy a house, this is not a good thing.
4. Aunts who buy gold may be depressed.
As we all know, once the Federal Reserve raises interest rates, as interest rates rise and the U.S. dollar strengthens, gold, silver and other precious metals priced in U.S. dollars will become more expensive, making them less attractive to investors. This will cause prices to fall.
5. Friends of overseas shopping may not be able to happily shop!
For the Chinese people, if you neither speculate in stocks, nor have a mortgage, nor buy gold, then the biggest impact on our lives will be studying abroad, traveling and overseas shopping.
Originally it was quite cheap and a good deal for us to go out, but once the Federal Reserve raises interest rates, it means that many parents of international students and overseas shopping shoppers will be depressed, because we have to pay more money to buy the same things. Not good news.
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