In the New York session on Wednesday (November 3), at 2 a.m. Beijing time on Thursday, the Federal Reserve announced the latest November interest rate decision. The Fed raised interest rates by 75 basis points as scheduled to 3.75-4.00%, in line with expectations.
Judging from the Fed’s decision statement this time, the Fed’s wording is slightly dovish, and the Fed hinted that it may slow down the pace of interest rate hikes. After the announcement of the resolution, the spot gold price soared by $15 in relief, the US dollar index fell by 80 points, and other non-US varieties rose to varying degrees.
Among them, the euro against the US dollar rose by more than 70 points in the short-term; the pound against the US dollar rose by nearly 100 points in the short-term; the Australian dollar against the US dollar rose by nearly 70 points in the short-term; the dollar against the yen fell by more than 100 points in the short-term;
The three major U.S. stock indexes rose short-term, the Dow rose 1%, the Nasdaq rose 0.35%, and the S&P 500 rose 0.6%. The U.S. 2-year and 10-year Treasury yield curves inverted further, with an inversion range of 53.7 basis points. After the decision was announced, the Fed’s swap trades showed that the probability of the Fed raising interest rates by 75 basis points in December fell to the 30% level.
Figure: Spot Gold Price 5 Minutes
Chart: US Dollar Index 5 Minutes
Chart: EUR/USD 5 minutes
Chart: USD/JPY 5 minutes
Fed hikes rates by 75 basis points as scheduled, policy hints at slower pace of rate hikes
In terms of monetary policy, the Federal Reserve raised the benchmark interest rate by 75 basis points to a range of 3.75%-4.00%, which is 75 basis points of interest rate hikes for four consecutive times, and has raised interest rates by 375 basis points this year. Raise the discount rate from 3.25% to 4.00%.
The Fed believes it needs to keep raising interest rates until they reach a sufficiently restrictive level. However, it is prepared to adjust monetary policy as appropriate and will take into account cumulative tightening and lagged effects and will monitor economic and financial developments.
On employment and inflation, the Fed said job growth was strong and the unemployment rate remained low. Inflation remains high, partly reflecting (market) imbalances. On the growth front, the Fed sees recent indicators pointing to sluggish growth in spending and production. In terms of geopolitical situations, the conflict between Russia and Ukraine has brought additional upward pressure on inflation, putting pressure on global economic activity.
Members unanimously agreed on the interest rate decision.
Market Analysis Comments on the Fed Resolution
Nick Timiraos, “Fed Microphone” commenting on the Fed’s interest rate decision, pointed out that the new language in the FOMC statement indicated that interest rates would be raised further, but suggested that there may be a slight increase.
The agency commented on the Fed’s interest rate resolution that it is worth noting that the 75 basis point rate hike this time was still unanimously approved by 12 voting committees. Let’s face it, anyone in favor of slowing the pace of aggressive rate hikes is probably asking to pay attention to the lagged effects of policy.
Analysts comment on the Fed rate decision: In my opinion, the new content in the statement is dovish. The Fed’s focus on “the degree of cumulative tightening” and “the lag in the impact of monetary policy on economic activity and inflation” is the best proof. And we’ve long known that the Fed has been pursuing “sufficiently restrictive” interest rate levels.
Market Analysis: Where does the interpretation of “Fed signalling that it will slow rate hikes in the future” comes from? The U.S. stock market soared after the Federal Reserve raised interest rates by 75 basis points again, suggesting that the pace of interest rate hikes will be slowed in the future. The FOMC statement said that in determining the pace of future interest rate increases in the target range, the committee will take into account the cumulative tightening of monetary policy, the lag in the effects of monetary policy on economic activity and inflation, and economic and financial developments. The market’s interpretation of this sentence is that the Fed is signaling that it will slow interest rate hikes in the future.
Changes in the probability of future interest rate hikes before and after the Fed’s decision statement
Before the FOMC statement, according to CME’s “Federal Reserve Watch”: the probability of the Fed raising interest rates to 4.00%-4.25% in December is 5.6%, the probability of raising interest rates to 4.25%-4.50% is 47.9%, and the probability of raising interest rates to 4.50%-4.75% The probability is 46.6%; the probability of raising interest rates to 4.25%-4.50% by February next year is 2.7%; the probability of raising interest rates to 4.50%-4.75% is 25.8%, and the probability of raising interest rates to 4.75%-5.00% is 47.2% , the probability of raising interest rates to 5.00%-5.25% is 24.3%.
After the FOMC statement, according to CME’s “Federal Reserve Watch”: the probability of the Fed raising interest rates to 4.00%-4.25% by December is 3.8%, the probability of raising interest rates to 4.25%-4.50% is 64.5%, and the probability of raising interest rates to 4.50%-4.75% The probability of raising interest rates to 4.25%-4.50% by February next year is 2.3%; the probability of raising interest rates to 4.50%-4.75% is 40.8%, and the probability of raising interest rates to 4.75%-5.00% is 44.5% %, the probability of raising interest rates to 5.00%-5.25% is 12.4%.
Analysts believe U.S. recession is inevitable
According to a recent survey of 1,325 CEOs by KPMG, an internationally renowned accounting professional services firm, 91 percent believe the U.S. economy is heading for a recession. Of those, 51% said they were preparing for an economic downturn by laying off workers. In a recession, new hires are one of the first targets companies are targeting for layoffs, the analysis said. New hires tend to be younger and less experienced. The longer an employee is with the company, the more valuable they are. If the company is going to lay off people, it would rather lay off someone who doesn’t have all the know-how of the company.
The analysis said a U.S. recession is “inevitable” as long as the Fed tries to bring inflation back to its 2 percent target. Analysts expect U.S. inflation to fall to 3.5%-4% next year, which would give the Fed an “excuse” to pause rate hikes. However, the Fed will continue to tighten policy longer than expected. As inflation pulls back, you may see the Fed loosen the brakes, but at some point the U.S. will slip into a recession, which is somewhat inevitable.
Many asset portfolios are built on false assumptions due to investors’ lack of experience dealing with inflation and recessions, the analysis said. These include the idea that holding bonds will hedge stocks and that private investments will outperform public securities. After the “Easiest Investing Decade”, people are getting pretty complacent. In an inflationary environment, bonds and stocks will be more closely related, so bonds and stocks are not an effective hedge against inflation. During a recession, private investing will be hit by corporate bankruptcies. Economic uncertainty and heightened market volatility have created opportunities for active asset management.
At 2:20 Beijing time, spot gold was quoted at $1,663.33 per ounce