Can interest rates be lowered this year?, The collective decline of the US stock market, sudden late at night! The Federal Reserve raises interest rates and presses the "pause button"

The Federal Reserve announces that maintaining current interest rates meets market expectations

On September 20th local time, the Federal Reserve of the United States concluded a two-day monetary policy meeting and announced that the current target range of the federal funds rate, which is between 5.25% and 5.50%, will remain unchanged, in line with market expectations. Since the start of the interest rate hike cycle last year, the Federal Reserve has raised interest rates a total of 11 times, with a cumulative increase of 525 basis points.

The three major US stock indexes collectively closed lower

The Federal Reserve's suspension of interest rate hikes is in line with market expectations. On the 20th local time, the three major US stock indexes collectively closed lower. The Nasdaq fell 1.53%, the S&P 500 index fell 0.94%, and the Dow Jones fell 0.22%.

US inflation rebounds beyond expectations, market predicts that the Federal Reserve may restart interest rate hikes within the year

At present, the inflation situation in the United States has eased, but it has not yet reached the Federal Reserve's target level of 2%. The data previously released by the US Department of Labor showed that the US Consumer Price Index increased by 0.6% month on month in August, significantly higher than the 0.2% increase from the previous month; The year-on-year increase reached 3.7%, significantly higher than last month's 3.2%, and also higher than market expectations. This is mainly due to the impact of rising energy prices, which also makes some investors anticipate that the door to the Federal Reserve's interest rate hike may not be closed for some time to come. According to data from the Federal Reserve Observation Tool, the market expects a probability of around 30% for the Fed to raise interest rates in the remaining two meetings of the year, which are in November or December.

Analysis: The strike by American car workers will bring many variables to the subsequent policy direction of the Federal Reserve

At the same time, many market participants have also pointed out that the US auto workers' strike, which began in mid month, has added many variables to the subsequent policy direction of the Federal Reserve. If the strike continues for too long, car prices may rebound, putting upward pressure on US inflation.

The pace of the Federal Reserve's interest rate hike is temporarily suspended! Can interest rates be lowered this year?

After the last time the Federal Reserve raised interest rates to the highest level in 22 years, in the early hours of Beijing time on the 21st, the Federal Reserve announced a suspension of interest rate hikes! When will the interest rate reduction channel open?

The pace of interest rate hikes is temporarily suspended

After the two-day interest rate meeting, the Federal Reserve announced a suspension of interest rate hikes and maintained the target range of the federal funds rate at 5.25% -5.5% unchanged.

After the announcement of the Federal Reserve's interest rate decision, the three major US stock indexes experienced short-term declines. As of press release, the Dow Jones Industrial Average's gains narrowed to 0.3%, the Nasdaq fell 0.41%, and the S&P 500 index fell 0.11%.

Federal Reserve Chairman Powell stated at a press conference that there is still a long way to go to reduce inflation to 2%, and long-term inflation expectations remain well anchored. Inflation has eased since mid-20th last year, and the Federal Reserve is committed to implementing and maintaining sufficiently restrictive policies to reduce inflation to 2% over time.

Will interest rates be raised in the fourth quarter?

According to data from the US Department of Labor, the Consumer Price Index in August increased by 3.7% year-on-year, an increase of 0.5 percentage points compared to July; The core CPI increased by 4.3% year-on-year, still far above the long-term target of 2%. This is the second consecutive month that the year-on-year growth rate of the US CPI has rebounded, and it has set the largest month on month increase in 14 months.

According to Lu Zhe, Chief Economist of Debon Securities, the rise in oil prices and low base have driven up the year-on-year rebound of CPI in August. Core inflation has continued to decline year-on-year, but non residential core service inflation has rebounded again, which may strengthen inflation stickiness. The year-on-year growth rate of CPI in the United States may be difficult to fall below 3% within the year.

Currently, the target of 2% CPI in the United States is still far away. Will interest rates be raised this year?

Zhongxin Jingwei noticed that Powell emphasized at the press conference that he would hold meetings one by one to make decisions, and if the situation is suitable, he will prepare to further increase interest rates; The Federal Reserve's forecast is not a plan, and policies will be adjusted accordingly; I have never intended to signal any timing of interest rate cuts, and there will be an opportunity to do so at the appropriate time.

Lu Zhe believes that in the short term, the rebound in commodity prices and strikes by workers in the US automobile manufacturing industry may bring upward risks to inflation, or further increase the probability of interest rate hikes in November. In the medium to long term, the tail risk of inflation rising again due to energy, replenishment, supply chain, and demand resilience means that there is still a way to go for interest rate cuts, and it is expected that the Federal Reserve will find it difficult to initiate interest rate cuts before the second half of 2024.

Chen Xing, Chief Macro Analyst of Caitong Securities, believes that the book losses of financial institutions caused by interest rate hikes are difficult to properly resolve before interest rate cuts, and the banking crisis has not ended. Although the usage of liquidity tools by the Federal Reserve has recently declined, it remains at a high level, and existing risks are more concentrated in small and medium-sized banks and non bank institutional sectors. With the continuation of restrictive interest rates, there is still a possibility of an economic recession, which may result in passive interest rate cuts.

What is the next step for the People's Bank of China?

On the eve of the Federal Reserve's interest rate decision, the People's Bank of China lowered reserve requirements for the second time this year.

On September 15th, the central bank lowered the reserve requirement ratio for financial institutions by 0.25 percentage points.

Zhou Maohua, a macro researcher in the financial market research department of Everbright Bank, said that the central bank's RRR reduction was basically in line with market expectations. Mainly, the central bank will increase its efforts to stabilize growth, boost market confidence in economic recovery, and consolidate the trend of economic stabilization and improvement.

In addition, as the National Day holiday approaches towards the end of September, market liquidity demand will also increase synchronously, which requires corresponding financial support to help the market overcome the impact of special time points.

Zou Lan, Director of the Monetary Policy Department of the People's Bank of China, stated on the 20th that there is still sufficient policy space for monetary policy to respond to unexpected challenges and changes. The People's Bank of China will continue to accurately and effectively implement a prudent monetary policy, strengthen countercyclical regulation and policy reserves, and use high-quality financial services to support high-quality development.

In terms of exchange rate, Zou Lan stated that the exchange rate of the Chinese yuan against the US dollar is very important, but it is not the entire exchange rate of the Chinese yuan. We should also take a comprehensive view and pay more attention to the changes in the exchange rate of the Chinese yuan against a basket of currencies. In the next stage, the People's Bank of China and the State Administration of Foreign Exchange will aim to maintain the basic stability of the RMB exchange rate at a reasonable and balanced level, based on long-term, current, comprehensive policies, correction of deviations, and stable expectations. They will resolutely correct unilateral and pro cyclical behavior, dispose of behavior that disrupts market order, and resolutely prevent the risk of exchange rate overshoot.

According to Zhou Maohua's analysis, there is still ample policy space in China, but the threshold for further reserve requirement and interest rate cuts has been raised in the short term. This is mainly due to the economy showing a stable and positive trend, and the central bank's continuous efforts are gradually releasing policy effects. It is necessary to maintain a certain level of patience and determination. At the same time, there may be potential risks in excessively loose policies.