The probability of the Fed raising interest rates by 25 basis points in February to raise the benchmark interest rate to the range of 4.50%-4.75% is 99.9%. (Image source: Adobe Stock)
[Look at China News, January 24, 2023](See comprehensive report by Chinese reporter Wen Long) According to data from the “Fed Watch” of the Chicago Mercantile Exchange (CME), the Federal Reserve raised interest rates by 25 basis points in February to raise the benchmark interest rate to 4.50%. The -4.75% interval has a 99.9% probability. Such a small rate hike would give capital markets a sense of security, but under inflation (inflation), that sense of security may be false.
The Wall Street Journal reported on Jan. 23 that Fed officials are preparing to slow the pace of rate hikes for the second time in a row and discuss room for future rate hikes amid more evidence that inflationary pressures will ease further this year.
Fed officials are likely to start discussing the conditions for a pause in rate hikes this spring at their Jan. 31-Feb. 1 meeting, including how far labor demand, spending and inflation need to slow.
Fed officials have said in recent public statements and interviews that scaling back rate hikes to a more conventional 25 basis points would give them more time to assess the impact of rate hikes so far and decide when to stop raising rates.
The Fed raised interest rates by as little as 50 basis points in December, following four consecutive hikes of 75 basis points. Federal Reserve officials say it will take time for the full cooling effect of rate hikes to play out.
On January 23, local time, the Chicago Mercantile Exchange (CME) “Fed Watch” data showed that the probability of the Fed raising interest rates by 25 basis points in February to raise the benchmark interest rate to the range of 4.50%-4.75% was 99.9%, and the probability of raising interest rates by 50 The probability of a basis point is 0%; the probability of a cumulative rate hike of 25 basis points by March is 11.5%, the probability of a cumulative rate hike of 50 basis points is 88.5%, and the probability of a cumulative rate hike of 75 basis points is 0%.
However, the capital market is increasingly divided on the rate cut in 2023. The last time hedge funds and asset managers diverged was when the Fed’s monetary policy tightening cycle peaked in late 2018.
The U.S. Treasury market has rallied this year as capital markets bet the Fed will soon end its most aggressive rate hike this round.
“A bullish theme is developing in the interest rate market, with growing perceptions that the Fed is close to ending rate hikes,” said Andrew Ticehurst, an interest rate strategist at Nomura Securities in Sydney. As strong as it suggests.”
Although the capital market generally believes that the Federal Reserve will only raise interest rates by 25 basis points in early February, such a small rate hike will give the market a sense of security. However, this sense of security may be false, as global inflation remains high.
Fed Governor Waller (Christopher Waller) said that he will support the next resolution to slow down the pace of interest rate hikes. Federal Reserve Chairman Powell is also inclined to support a 25 basis point rate hike. Against this background, many investors have a sense of security that the Fed is becoming more friendly to the capital market.
However, the optimism in the capital market should not be too high, because Fed officials will not relax their pace of raising interest rates in a short time. Even the most “dovish” Fed officials have indicated that they will not change monetary policy anytime soon.
Fed director Lael Brainard, who is regarded as “dovish” by the capital market, believes that the data show that the core inflation data will flatten, and the overall core inflation may still rise. These uncertainties will make the decline in inflation slower due to related factors such as the epidemic.
Source: Watch China
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