The minutes of the Federal Reserve meeting indicate that it is considering additional policy tightening
On October 11th local time, the Federal Reserve released the minutes of the Federal Open Market Committee (FOMC) meeting from September 19th to 20th. Participants believe that in order to achieve the standard of reducing inflation to 2%, appropriate additional policy tightening will be considered, but they will also measure the long-term impact of sustained monetary policy tightening on the economy and finance.
How do you view the wording and stance of the Federal Reserve in its meeting minutes? What are the guidelines for the subsequent Federal Reserve policy path? Let's listen to the analysis of He Ning, Chief Macroeconomic Analyst of Open Source Securities.
The Federal Reserve's decision-making model has shifted towards' seeing more and moving less'
He Ning: At the September FOMC meeting, Federal Reserve Chairman Powell stated that if necessary, he would further raise interest rates and intend to maintain policy interest rates at a restrictive level until he is confident that inflation will continue to decline to the target level. The overall performance is relatively hawkish, and risk assets have responded more strongly to this. Compared to Powell's hawkish stance at the September FOMC meeting, the information in the minutes of this meeting is relatively neutral and does not exceed expectations.
Specifically, on the path of future interest rate hikes, most participants believe that there will be another interest rate hike in the future, but some participants do not need to do so again. All participants agreed that the Federal Reserve is now in a position to act cautiously, and every subsequent decision needs to be based on all the information obtained and its implicit economic outlook and risk balance relationship. The above statement indicates that the current internal divisions within the Federal Reserve may continue to widen, with its decision-making model shifting towards "seeing more and moving less". Market concerns may exceed expectations, and hawkish statements have not yet emerged.
The Federal Reserve's November meeting may continue to suspend interest rate hikes
He Ning: Secondly, in terms of maintaining high interest rates for a certain period of time, all participants believe that it is necessary to maintain a restrictive interest rate policy until the committee is confident that inflation is sustainably falling back to its target range. Some participants also mentioned that the pace of inflation falling back to 2% will affect their attitude towards monetary policy. This means that if inflation smoothly drops to 2%, then interest rate cuts will also come relatively quickly.
Although participants believe that there are certain inflationary risks, especially the occurrence of car strikes and other events, which may contribute to this risk, it is still necessary to balance the risks of excessive and insufficient tightening. Considering that the recent strike situation has not expanded, it may help the Federal Reserve to lower its risk assessment.
Overall, the minutes indicate that the Federal Reserve remains cautious and will continue to make decisions based on data.
US Inflation Data Release
Let's take a look at the latest inflation data released by the United States. The producer price index (PPI) of the United States increased by 2.2% year-on-year in September, higher than the market expectation of 1.60%, and a month on month increase of 0.5%, higher than the market expectation of 0.30%.
The US CPI in September increased by 3.7% year-on-year, with an estimated 3.6%, compared to the previous value of 3.7%; The US CPI increased by 0.4% month on month in September, with an estimated 0.3%, compared to the previous value of 0.6%.
From the latest released data, what is the inflation situation in the United States? Will the rise in oil prices increase inflationary pressure in the United States as a new round of Palestinian-Israeli conflict erupts? Let's listen to the analysis of Ma Wei, an assistant researcher at the American Institute of the Chinese Academy of Social Sciences.
The United States seems to have entered a stage where inflation is difficult to continue to decline
Ma Wei: According to data, the year-on-year growth of PPI in the United States in September reached 2.2%, far exceeding market expectations of 1.6%. This has been the third consecutive month of rising US PPI, indicating that the US is currently in a bottleneck stage in addressing inflation issues.
In addition, the core PPI (excluding food and energy prices) achieved a growth rate of 2.7% in September, which is also much higher than expected. The core PPI has hardly shown a significant downward trend in the past three months, but has entered a relatively stable range. From the perspective of overall PPI and core CPI, it seems that the United States has entered a stage where inflation is difficult to continue to decline.
Two factors driving the rise of PPI
Ma Wei: Specifically, one of the main factors driving the rise in PPI is the rise in crude oil prices, and the other factor is the price of deposit services. The energy sector has been an important component of inflation since August, and this is also an important challenge facing the United States in addressing inflation issues. Especially since the Israeli-Palestinian conflict, energy prices are likely to continue to rise, although this depends on the scope of the new round of Israeli-Palestinian conflict. At present, the conflict may be controlled within a certain range and will not cause further impact on energy prices.
The rise in deposit service prices is directly related to the high interest rate policy in the United States. The Federal Reserve has stated in recent interest rate meetings and meeting minutes that high interest rate policies will continue for a considerable period of time, which will become an obstacle for the United States in the final stage of addressing inflation.
US core CPI remains high
Ma Wei: From the CPI data, the year-on-year growth rate of 3.7% is still slightly higher than expected, mainly driven by two factors: energy prices and housing related prices. Even after excluding energy prices, the core CPI of the United States still reached a high of 4.1%.
Both CPI and PPI data indicate that the current disinflation in the United States has entered a bottleneck period. In the future, there is still an upward trend in energy prices, and the recently released very hot non farm employment data, as well as strikes in the automotive and healthcare industries, will make the overall inflation outlook in the United States in October not optimistic, further strengthening the determination of the Federal Reserve to further maintain high interest rates.
US stocks rose for four days
As of October 11th, US stocks have risen for four days, with the Dow breaking a two week high since September 25th, the S&P hitting a nearly three week high since September 20th, the Nasdaq reaching its highest since September 19th, and the Nasdaq 100 reaching its highest since September 14th. What factors are affecting the four consecutive gains of US stocks? Is there a good investment opportunity? What do you think of the aftermarket? Let's listen to the interpretation of Wang Xinjie, Chief Investment Strategist of Standard Chartered China Wealth Management Department.
US stock market's third quarter report may not exceed market expectations
Wang Xinjie: Last night, the US stock market experienced a situation of high opening and low closing, and finally pulled up in the end. The main factor was the fluctuation in investment sentiment. However, the good news is that the newly released minutes of the Federal Reserve's September meeting show that the voting members of the Federal Reserve have different opinions on rate hikes and have also discussed issues related to rate cuts and neutral interest rates. So in the short term, the overall sentiment has benefited from the dovish comments of the Federal Reserve, resulting in a relatively positive situation.
However, for US stocks, inflation remains a disruptive factor, with the month on month PPI data falling to 0.5% in September, but still higher than the market's expected 0.3%. Today, the US CPI was announced, and after Friday, the financial report for the entire third quarter of the US stock market will begin. In the recent forecast for US stock market financial reports, the overall forecast for the third quarter has been raised, indicating that the market has already expected good performance in the US stock market financial reports for the third quarter. With expectations fulfilled, the threshold for exceeding expectations and driving the stock market up has been raised.
US stocks still have sustained upward momentum
Wang Xinjie: Firstly, compared to the previous quarters, there are signs of further improvement in the (third quarter) financial report, with profit growth surpassing other markets. At the same time, the artificial intelligence and information technology related industries have outperformed, driving profit growth. Therefore, we will also adjust the position of US stocks in the next 6-12 months to over allocation.
Since the beginning of this year, macroeconomic data in the United States has remained resilient, and inflation may peak. With the Federal Reserve no longer raising interest rates and the expected delay in the US recession, US stocks are in a relatively positive trend. At present, from the fourth quarter of 2023 to the third quarter of 2024, US stock earnings may maintain a year-on-year growth of 10% to 13%. We expect that in the future, after short-term fluctuations, US stocks will still have sustained upward momentum.