Last week, the world staged "Super Central Bank Week", with central banks of multiple important economies such as the United States, Japan, the United Kingdom, and Switzerland announcing their latest interest rate resolutions. Among them, the Bank of Japan raised interest rates for the first time in 17 years; As the "global liquidity" switch, the Federal Reserve announced that the target range of the federal funds rate will remain unchanged; Switzerland became the first G10 country to announce interest rate cuts in 2024.
Analysts point out that as global economic growth slows down, the majority of central banks in major economies around the world will cut interest rates in the second half of this year, initiating a synchronous easing policy cycle. Industry insiders have questioned that if central banks of various countries do not turn to interest rate cuts in a timely manner, it may lead to an uncontrollable economic slowdown.
The Federal Reserve is "holding its ground"
On March 20th Eastern Time, the Federal Reserve Monetary Policy Committee (FOMC) announced that the target range for the federal funds rate would remain unchanged at 5.25% to 5.50%. Federal Reserve Chairman Powell stated that interest rates may be at a cyclical peak, and a rate cut at some point this year is appropriate.
The statement of the Federal Reserve has been classified by the market as biased. After the meeting, US stocks immediately rose, with short-term interest rates on US bonds falling and long-term interest rates fluctuating, and the US dollar index falling.
Yang Ao, Chief Chinese Market Analyst at FXTM Wealth Management, told a reporter from China Fund News that the Federal Reserve's interest rate agreement this time is a "virtual pigeon real eagle". He believes that although the Federal Reserve's dot chart confirms the expectation of a 75 basis point interest rate cut within the year, this resolution also confirms that higher interest rates will be maintained for a longer period of time and a more positive attitude towards economic growth, suggesting that long-term interest rate policies still lean towards a tighter stance.
Since the economy is still strong, why does the Federal Reserve describe it as "biased"? Regarding this, Tianfeng Securities analyzed that although the February data exceeded expectations, the impact of a high interest rate environment on the US economy may be more significant in the next stage. Recent high-frequency data shows a marginal weakening of US consumption momentum; The current price exceeding expectations may be related to the second round effect of the previous oil price shock, which may gradually subside within the year; High frequency credit data shows that the supply and demand of US real estate are also cooling.
Overall, Tianfeng Securities believes that with the gradual decline in domestic total demand, there is still a high possibility that the Federal Reserve will initiate interest rate cuts around June.
Everbright Securities believes that Powell has repeatedly emphasized the need to strike a balance between "too fast" and "too slow" rate cuts. The current resilience of inflation in the United States is relatively strong, and there is not much room for inflation to rebound under the constraints of high interest rates. Looking ahead, it is highly likely that the Federal Reserve will initiate a "discontinuous" interest rate cut by the middle of this year.
The Bank of Japan withdraws from ultra loose monetary policy
The Bank of Japan's policy adjustment this time involves multiple aspects and overall meets market expectations. The latest policy of the Bank of Japan indicates that it has withdrawn from ultra loose monetary policy and is gradually moving towards normalization. The performance of the Japanese economy also seems to suggest that the central bank no longer needs to provide support for it.
According to the CICC report, from 2021 to 2023, the Japanese economy achieved growth above potential GDP for three consecutive years, with a nominal GDP growth rate of 5.7% in 2023, the highest growth rate since 1991.
After the announcement of the Bank of Japan's decision, the Nikkei 225 index returned to 40000 points on the same day, and the US dollar rose against the Japanese yen in the short term. Last Wednesday, it reached a high of 151.34, close to the highest point in decades of 151.94.
The team led by Xiong Yuan, Chief Economist of Guosheng Securities, stated that since the end of February, the market's expectations for the Bank of Japan's interest rate hike have rapidly increased, leading to a decline in Japanese stocks, a rise in the yen exchange rate, and Japanese bond yields. This meeting did not release any more hawkish signals, and the impact of interest rate hikes on the market may have been fully reflected.
The market's expectations for the Bank of Japan's interest rate hike vary. Barclays Bank pointed out that the Bank of Japan's exit from negative interest rates has little impact on the economy, and the bank assumes that the Bank of Japan will further raise interest rates to 0.25% in July. Nomura Securities expects the Bank of Japan to raise interest rates again to 0.25% in October.
Rengo, the largest labor union organization in Japan, announced on March 15th that the results of the first round of spring wage negotiations this year showed a salary increase of 5.28%, far exceeding the 3.8% salary increase in the same period of 2023.
Nomura Japan Chief Economist Keihei Morita stated that by mid-2025, Japan's inflation rate based on the core consumer price index (excluding fresh food) will remain above 2% year-on-year growth. This will further enhance the Bank of Japan's confidence in the established virtuous cycle between wages and prices.
CITIC Securities believes that there is still a possibility of further increase in Japan's policy interest rates, and the short-term target interest rate may reach around 0.5% by the end of the year. There is still room for further narrowing of the US Japan interest rate spread, but the probability of a significant reversal in yen carry trading within the year should be relatively small.
Zhao Yaoting, Global Market Strategist for Asia Pacific (excluding Japan) at Jingshun Group, said, "We do not expect the Bank of Japan to further raise interest rates before the end of the year. Potential changes in policy interest rates will depend on price stability expectations. Currently, the Bank of Japan's core consumer price index (CPI) expectation for the next fiscal year remains around 2%." UBS Wealth Management Investment Director's Office (CIO) believes that the Bank of Japan will maintain policy interest rates unchanged this year due to a slowdown in inflation and a negative GDP gap.
Decision of the Swiss Central Bank
Or initiate a cycle of interest rate cuts in overseas economies
The Swiss central bank became the biggest surprise of this Super Central Bank Week.
The Swiss Central Bank announced a 25 basis point reduction in key interest rates, marking the first time that central banks of G10 member countries have taken interest rate cuts since the pandemic subsided.
As soon as the news came out, the Swiss franc plummeted against the US dollar and fell directly to an 8-month low against the euro.
China International Capital Corporation's foreign exchange analysis believes that the risk of interest rate cuts by the Federal Reserve of China, the United States, and the European Central Bank this year may put upward pressure on the Swiss franc, which is a key reason for the Swiss central bank's decision to cut interest rates early. In addition, the Swiss central bank's simultaneous reduction of inflation expectations has put pressure on the Swiss franc to continue its downward trend after the meeting.
Some market analysts see the Swiss central bank's decision to cut interest rates as the beginning of a global easing cycle.
Bloomberg analyst Nour Al Ali said that the unexpected rate cut by the Swiss central bank further increases the possibility of a global monetary policy easing cycle starting this summer. Traders believe that the possibility of a rate cut by the European Central Bank in June is increasing, followed by the Federal Reserve and the Bank of England. These bets further boosted the rebound of the bond market and stock market after the Federal Reserve meeting. Economists predict that the Bank of England may cut interest rates for the first time in August, but the possibility of an early rate cut is also anticipated.