To The Moon

Key Highlights: 

How is the FED announcement in terms of the market?

What is the probability of getting a Recession?

How will the market survive after the increase in interest rates?

Know full details on important decisions of Federal Reserve (FED)from Global Economics and Analysts and Discuss How to Managing Your Money?

As chart shows, one word to describe the FOMC interest rate decision is very "hawkish". The Federal Reserve raised interest rates by 75 basis points, and hinted that the next interest rate increase might also be 75bps.

In this FOMC statement, the committee is strongly committed to returning inflation to its 2% objective is added. The implied meaning of this sentence is that if inflation does not reach 2%, the FED will continue to take action.

Chart: comparison of FED‘s Monetary Policy Statements (June vs. May)

Source from FED‘s Monetary Policy Statements

This meeting has fully revealed the following information:

1) Monetary tightening is urgent.

2) There is a lot of room to raise interest rates in the future. The federal funds rate may be higher than 4%.

3) Fighting inflation is the most important task, at the cost of economic recession.

4) Whether the economy can achieve a "soft landing" is not entirely up to the Federal Reserve.

5) Monetary policy pays more attention to overall CPI than core CPI.

The newly released dot matrix chart shows that the FED may start to cut interest rates in 2024, and the expected median federal funds rate at the end of 2022, 2023 and 2024 will rise to 3.4%, 3.8% and 3.4% respectively.

Source From Federal Reserve

In addition, the key points of the press conference of FED Chairman Powell's comments are as below:

1) It is not expected that the move of raising interest rates by 75 bps will become common, and the next time is most likely to raise interest rates by 50 bpos or 75 bps;

2) FED are firmly committed to bringing inflation down. The labor market is extremely tense. once again emphasize that inflation is too high;

3) The FED sees that the economy has slowed down, but it is still at a healthy growth level. The FED will not try to trigger a recession;

4) There is no reason to think that QT will lead to insufficient liquidity, and the market does not seem to be too much affected by QT;

5) Fluctuations in commodity prices may make the FED lose the possibility of a soft landing, which is an environment of high uncertainty;

6) It is hoped that the interest rate will be kept at a tight level of 3%-3.5% before the end of 2022.

It could be summarized to: "Inflation's bad. FED are doing their best. No one really knows what the heck is going on.

Source from: wsj.com

Powell also admitted in the Q & A session of the press conference: This is really a special case, because the time of inflation data is too close to the time of the FOMC... This situation may occur once every 10 or 20 years, so this is an "exception", The FED is powerless to deal with the main factors affecting this inflation.

When asked if hawkish interest rate hikes would trigger a recession: Powell dismissed the suggestion that the FED was trying to induce a recession, saying he saw “no sign” of a broader slowdown while assuring Americans that higher rates could be borne. “It does appear that the US economy is in a strong position, and well positioned to deal with higher interest rates,” he said.

This is undoubtedly the most dramatic meeting of the Federal Reserve in recent years. How do financial institutions interpret this result?

Earlier, Barclays, Jeffrey, JPMorgan Chase, Goldman Sachs, Nomura, and Wells Fargo Bank, the French bank, the Dominion Bank,all predicted the interest rate increase of 75bps. Some views of global institutional analysts are collected as follows:

Collected by Capital_Insights

Collected by Capital_Insights

Collected by Capital_Insights

It seems that the institutions have accepted the interest rate increase and priced in it. The market reaction related to the interest rate increase is as follows:

• Government Bond $US10Y(US10Y.BOND)$

As soon as the FOMC announced the decision, the yields of us 10-year Treasury bonds began to fall. Tiger analyst Dr LAN believed that this was not a response to the interest rate increase, but a phenomenon of US Treasury positions adjustment. The main reason is that there were too many short positions in US bonds in the early stage, and now it is time to make up for them.

• Dollar：$Invesco DB US Dollar Index Bullish Fund(UUP)$

The DXY index of the US dollar's tren is the same as that of US Treasuries. A few days ago, it was overly bullish. After the interest rate was determined, it was reversed. The reaction is straightforward monetary policy divergence favors the greenback, which could continue advancing against all its peers.

How the dollar index goes next is very complicated, because it involves another currency, the euro. The ECB held an emergency meeting, and the situation is very important. They are thinking about whether to release water like Japan or follow the United States.

Moreover, other central banks may be forced to act in response to the FED. The first tests are for the SNB, BOE and BOJ, all set to make announcements in the next 36 hours.

• U.S. Stock Market：$S&P 500(.SPX)$

The first reaction of the market was a decline, which was the machine's interpretation of the FOMC interest rate decision. There is nothing wrong with this decline, as the machine grasps the key words of the FOMC,which found that the hawkish attitude is very obvious.

In general, markets prefer lower rates and swap money Fast rate hikes are adverse, especially to tech stocks but also to broader markets.

Unless the terminal interest rate comes quickly, the stock market will begin to look for the bottom after the setback.

• Gold :$Gold - main 2206(GCmain)$

For gold, the place to watch is 10-year yields. If my analysis is correct and the Fed convinces markets of its determination to fight inflation, it would send long-term yields lower – perhaps even forecasting an outright recession. For XAU/USD, a fall now could be a buying opportunity.

In addition, the most serious impact to consumers is the bulk consumption that needs to rely on loans.

The FED’s move to rein in inflation will affect home mortgages, credit card borrowing, car loans, labor market stability and overall consumption. Especially the housing and automobile consumption that are closely related to people's lives.

Consumers are already paying more for gas, groceries and everyday items, but they should expect to fork over more in other parts of their lives after the Wednesday’s interest rate increase.

Source from Planetnewspost.com

It can be said that the nutrients contributing to the current U.S. inflation are numeric Fiscal spending likely went a step too far; a red-hot job market lifted worker pay the most in a generation; global supply shocks kept coming instead of easing; the war in Ukraine created food and fuel scarcities.

But both the Fed and Biden administration were slow to shift their focus from fighting the economic shock of the pandemic, particularly on employment, to controlling inflation that is so acute the central bank is willing to court a recession to fix it.