To The Moon

-Powell gave his answer after the historic 75 basis point interest rate hike.

A testing Wednesday passed, and Federal Reserve Chairman Powell spent his first day of congressional hearings.

Judging from the market trend, Powell won. His speech did not bring much shock to the financial market. The US stock market only fell slightly, and the volatility of the global market was not much different from that of Tuesday

Key points of speech:

1. The Fed has no intention of triggering an economic recession, but it cannot rule out the possibility of an economic recession (acknowledging the possibility of an economic recession);

2. But another risk is that we will not be able to restore price stability and will have to allow high inflation to take root in the economy. We can't fail in this task, we must bring the inflation rate back to 2% (by implication, we recognize the current realistic problems and accept the price of raising interest rates);

3. We need to be flexible in dealing with future economic data and changing prospects (this is the most credible sentence Powell said, and interest rates are expected to continue to change);

4. The financial environment has tightened and reflected a series of expectations of raising interest rates (the market has digested the expectations of raising interest rates, in other words, the damage caused by raising interest rates to the market has come to an end);

5. It is expected that it will be appropriate to raise interest rates continuously (fighting inflation will be unconditional).

Powell's speech is similar to his statement at the press conference after raising interest rates last week. There are not many words, but we can sift out three very useful messages:

First, the phrase "the financial environment reflects the expectation of raising interest rates" deserves careful consideration. It is "the expectation of raising interest rates" rather than "the reality of raising interest rates", and the market reflects the future rather than the present. This is Powell's view on the market. Compared with the performance of US stocks, the three major stock indexes all fell slightly last night, and it is expected that the financial market may enter a period of slowing volatility.

Second,This speech mentioned "economic recession", which was misread by many media as "Powell acknowledged the economic recession". If we take these news headlines for granted, we are likely to lose money. He is talking about "possibility"-the possibility of economic recession cannot be ruled out. Powell added a sentence later, which means completely different-I don't think the possibility of economic recession is particularly high now, you should know that no one is very good at predicting the economic recession that may occur far away. Therefore, don't be misled by media reports taken out of context.

Third, the word "flexible" is mentioned again, but it gives people a completely different feeling. In the past, the flexibility of understanding was to raise interest rates by 25 basis points, 50 basis points or 75 basis points. Now the flexibility of understanding is-where does the "end rate" peak? At present, most investment banks on Wall Street expect 4%.

Therefore, the conclusion:

1) The Fed has demonstrated its determination to fight inflation, and many inflation-linked assets will be shaken.

2) Try not to make large-scale bets on "economic recession". The economy is so blurred that even the Fed chairman can hardly figure out the current situation, let alone predict the situation in the coming months. The biggest worry in the market right now is the recession, but I think that's the last thing to worry about right now. When a few visionaries realize that the economy is in recession, shorting the stock market can make a profit. Now that everyone has a premonition of economic recession, the opportunities for ordinary investors have disappeared.

3) After Powell's speech, the biggest change is the market's expectation of interest rate. Powell's so-called "flexibility" must be listened to and believed.

Dive into the details,

The possibility of raising interest rates by 75 basis points in July and September is high;

The possibility of a rate hike in December and next February is rapidly evaporating (meaning November could be a turning point in slowing or suspending interest rate hikes);

The possibility of cutting interest rates in March next year increases.

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Among the expected changes in interest rates, the most certain thing is that changes will happen again.

4) Although the US stock market has not dropped significantly, don't be optimistic that it has bottomed outIt's over. Bitcoin, a leading indicator of the stock market (risky assets), fell below $20,000 again last night. To judge the bottom of the stock market, Bitcoin must survive the crisis first.

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