How to interpret the Federal Reserve ’s interest rate hike meeting and future interest rate hike process

Q: How to interpret the Federal Reserve ’s interest rate hike meeting and future interest rate hikes?

A: The Federal Reserve's June Interest Conference, which ended this week, decided to increase the interest rate of the federal fund 75bp to 1.50-1.75%, which is in line with market expectations.

The rate hike is gradually accelerating, and the Fed's intention is to "step on the brakes" to inflation expectations. The Federal Reserve raised interest rates at the three interest rates in March, May, and June this year, from 25bp, 50bp to 75bp, and increased in order. However, the Fed still lags behind the curve. The market's previous expectations of US inflation have not been exchanged in the second quarter. In May, the CPI in the United States rose 8.6%year -on -year. The Fed's consumer survey of the University of Michigan's 5 -year inflation expectations also jumped from 3.0%to 3.3%. Based on the historical experience of governing high inflation in the 1970s and 1980s, management inflation expectations are the most important tasks for suppressing inflation. Once inflation is expected to be out of control, inflation will continue to strengthen themselves. Faced with the current inflation expectations that have shown signs of out of control, they must be suppressed by a rapid rate of interest rate hikes. At present, whether it is the Bayeng government, the Federal Reserve, or the capital market, it has reached a consensus on this. The faster the interest rate hike, the sooner the initiative is obtained.

The final value of this round of interest rate hikes is still difficult to determine, and close attention pays attention to subsequent inflation. For the final value of this round of interest rate hikes, there is currently a lot of controversy in the market. The mainstream view of the market believes that the Federal Reserve ’s rapid interest rate hikes have superimposed the slowdown of the US economy. The highest point of Federal Fund interest rates in the US interest rate hike cycle will not exceed 4%. Even if the final interest rate is more than 4%, most of the interest rate hikes will be completed within this year (the Federal Reserve's dotted map is expected to be 3.25-3.50%at the end of this year), and it only needs to slowly raise interest rates in 2023. In the second half of 2023, the interest rate reduction channel will be returned.

Since last year, Bill Akman, a hedge fund leader who continued to remind the United States and calling on the Federal Reserve to rapidly raise interest rates, represented another point of view. He believes that even if the Federal Reserve raises interest rates quickly to suppress inflation expectations, the federal fund interest rate is expected to rise to 5-6%. The core difference of the two views is the judgment of inflation trends. After the announcement of the US CPI in April, the reason why the market was very optimistic is that the quarterly quarter -quarter -quarter CPI was only 0.3%, and the annualization was 3.6%. If inflation develops this path, the Federal Reserve raises interest rates to 3.0-3.5%, but in May, CPI rose 1.0%month-on-month, breaking the above expectations.

From the perspective of follow -up, this principle is also applicable. If the CPI can stabilize below 0.4%month -on -month, after the Federal Reserve raises interest rates this year, it can be more patiently waiting for the decline of the CPI base effect attenuation. Conversely, if the CPI increase in the second half of the year, it will continue to be higher than 0.4%. Under an annualized CPI of more than 4.8%, the final value of the interest rate near 4%is obviously not enough.

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