Original Author: Se7en

The Fed’s June FOMC, which was announced overnight, announced an interest rate hike of 75 basis points to 1.75%. levels before the outbreak.

However, as the US federal funds rate futures market forecast data released on Tuesday showed that the probability of the Fed’s decision to raise interest rates by 75 basis points rose sharply from 3.9% a week ago to 89%, so the market has already made up its mind about this result. Well-prepared, the clear "hawkish interest rate hike" did not cause heavy damage to the financial market. On the contrary, in the context of early pricing, because Powell said in the press conference that "the rate hike of 75 basis points is too large, it cannot The cryptocurrency market and the European and American stock markets ushered in a short-term retaliatory rebound, all recovering some of the lost ground from the poor start of the first half of the week.

market performance

After the announcement of the Federal Reserve’s June resolution, risky assets such as US stocks and cryptocurrencies fluctuated in a short period of time, and once reversed the rebound momentum earlier in the day. Affected by the description of "policy", risk assets generally ushered in a rebound.

Both Bitcoin and Ethereum have rebounded from the lows of nearly 18 months since the beginning of last year. As of the time of publication, Bitcoin was temporarily reported at 22,700 U, approaching the integer mark of 23,000 U. Ethereum simultaneously recovered the integer mark of 1,200 U, successfully recovering yesterday All intraday declines.

The S&P 500 and the Nasdaq index had twists and turns yesterday. The rapid upward momentum at the beginning of the session was interrupted by the Fed’s interest rate decision, and they quickly gave up almost all the gains during the day. However, US stocks resumed their gains after Powell’s press conference , hit a new intraday high before the close. The S&P 500 index closed up 1.46% at 3789.99 points, rebounding from a near 17-month low, while the Dow Jones Industrial Average rose more than 1% to 30668.53 points. The Nasdaq closed up 2.50% at 11099.15. Technology stocks and encryption-related stocks performed well. As of the close, Meta rose more than 3%, Amazon rose more than 5%, Apple rose 2%, and Microsoft rose nearly 3%, generally rebounding from a one-year low. MicroStrategy fell more than 2% before the market, but rose nearly 13% after the opening bell, and Coinbase also achieved a one-day increase of more than 6%.

After the announcement of the Fed's interest rate hike decision, the U.S. dollar index once set a new high in nearly 20 years, but turned down again during Powell's press conference, and has now fallen back below the 105 integer mark. The offshore renminbi rose above 6.72 in the intraday session. When Powell's press conference was nearing the end, the offshore renminbi rose more than 800 points against the US dollar, reaching a new daily high of 6.6669 yuan.

The yield on the 10-year U.S. base bond once fell below 3.3% during the day, and the yield on the 30-year long-term bond approached 3.32%. The two-year U.S. Treasury yield, which is more sensitive to monetary policy, fell below 3.20% during the day, and the five-year yield fell to 3.38%. The five-year U.S. bond and the 10-year and 30-year long-term bond yield curves continue to invert, indicating that the risk of recession still exists.

Spot gold quickly rose after the announcement of the Fed’s decision, and once regained the $1,840 mark, an increase of 1.6% in the day. As of the time of publication, the spot gold price fell slightly and was temporarily reported at $1,834. % increase.

Quick look at the results of the Fed's June interest rate decision

In its June resolution statement, the Fed reaffirmed its pursuit of the dual goals of achieving full employment and long-term inflation of 2 percent, but removed the previous statement's stance that "accompanying suitably firm (tighter) monetary policy, the (FOMC) Committee expects , inflation will return to the long-term inflation target of 2%, and the labor market will remain strong" language. replaced by"The (FOMC) Committee is strongly committed to bringing inflation back down to the 2% target"This relatively radical statement.

In addition, the dot plot shows that all Fed officials currently expect interest rates to be raised above 3% by the end of this year, compared to only one official a month ago. In addition, most officials expect interest rates to remain above 3% through 2024.

In this statement, when describing the current economic situation, it stated that "after a slight decline in the first quarter, overall economic activity appears to have picked up." Investment remains strong," the expression said.

Regarding employment, it said that "job growth has been strong in recent months, and the unemployment rate has remained at a relatively low level", which did not follow the previous description of "the unemployment rate has dropped significantly".

The wording on inflation, the conflict between Russia and Ukraine, and the impact of the Chinese epidemic on the supply chain basically followed the wording in the previous two interest rate resolution statements. However, the expression "there is high uncertainty about the impact of the (Russian-Ukrainian conflict) on the US economy" was deleted, and the Russian-Ukrainian conflict "is putting pressure on economic activity."

In addition, this statement reiterated that it will continue to reduce its holdings of treasury bonds, agency bonds and agency MBS according to the reduction route announced in May.

A Quick Look at Powell's Post-Decision Press Conference Speech

Powell said in a news conference,Inflationary conditions led the Fed to raise interest rates by 75 basis points in June, which is not expected to become the norm.Inflation expectations are rising, so think aggressive action is needed this time. The Fed needs to act pre-emptively so it has more options later.

Inflation has unexpectedly risen since the interest rate meeting in May, and strong evidence of a decline in inflation will be sought in the coming months. The FOMC is aggressively raising interest rates to more normal levels.The Fed's next interest rate decision will "choose one" between a single rate hike of 50 basis points and a 75 basis point rate hike.

Powell bluntly said that the CPI data in June was "shocking, and we have also noticed it. The reason for today's decision to raise interest rates by 75 basis points is that in addition to the higher-than-expected CPI in May, another factor is consumers' inflation expectations."

Powell said the Fed is firmly committed to bringing inflation back down. The Fed has the tools to restore price stability and must lower inflation to help bring about more job creation. Data show that short-term inflation remains high, but it will drop sharply in the medium term. Inflation expectations still exist. Inflation expectations are an important factor for this 75 basis point rate hike. Longer-term expectations point to a sharp pullback in U.S. inflation. It is important to keep long-term inflation expectations low.The Fed "will remain steadfast" in anchoring its inflation target at 2%.Powell emphasized that the Fed is highly concerned about the risk of high inflation and is firmly committed to reducing inflation. The Fed's policies have been adapting and will continue to do so.

Powell said the U.S. economy is strong and capable of responding to tightening financial policies. The Fed will not try to induce a U.S. recession, and there are "no signs" of a broader slowdown in the U.S. economy. Markets seem to be comfortable with the Fed's quantitative tightening (QT) process. There is no reason to think that the FOMC's QT will cause liquidity problems.

concerns about the future

After the Federal Reserve raised interest rates aggressively "as scheduled", analysts were not as optimistic about the future as the performance of the financial market overnight. Some voices pointed out that such aggressive interest rate hikes almost "clearly indicated" that the U.S. economy would slow down, and risk assets Will continue to face shocks, and then the Fed will even be forced to start cutting interest rates.

Frances Donald, global head of macro strategy at Manulife Asset Management, analyzed that the key today is the idea that the Fed is catching up with the market: raising interest rates early to drive unemployment up, and then cutting interest rates in 2024.The Fed (seems) happy to see rate hikes until the economy weakens, and then cut rates.We expect the easing cycle to start in 2023, not 2024.

Seema Shah, chief global strategist of Principal Global Investors, an investment institution, said that although the market is very worried about a 100 basis point rate hike, it is fully prepared for a 75 basis point rate hike, so today's decision does not bring Very obvious immediate negative impact. But once the (inflation) data starts to ramp up at a faster pace, stocks could fall again and credit markets are bound to face more pain.No matter how you look at it, the pain is either today or tomorrow.

Michael Matousek, chief trader of US Global Investors, an investment institution, pointed out that investors will change their strategies, no longer buy stocks with strong momentum, but look for oversold stocks and try to manage risks. We have been unable to take advantage of the Fed's east wind. Higher interest rates are necessary to regulate inflation, the difficulty is that the only way to lower inflation is to slow the economy, we knowInvestors may sell risky assets ahead of an economic slowdown.