Doubts about the Fed raising interest rates

In the face of inflation, calls for the Fed to raise interest rates intensify.

Stifling the possibility of early rate hike

Since St. Louis Fed President Bullard’s remarks that “the interest rate should be raised by 100 basis points before July”, the market speculated that the Fed may raise interest rates in February and end the QE policy early. However, with the release of the Fed’s final monthly schedule of U.S. Treasury purchases at 3 p.m. ET on Saturday, it is believed to have effectively stifled any speculation of an early rate hike.

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Judging from the timetable, the United States will purchase a total of US$20 billion of government bonds through 8 operations in the next month, and the last US$4 billion bond purchase will occur on March 9, in line with expectations.

Following the announcement of this timetable, the likelihood of an emergency rate hike by the Fed continued to decline. That’s because Fed officials have said a rate hike is unlikely before the bond-buying program ends.

In addition, although there are concerns that the Fed will make a move in a private meeting tomorrow morning, analyst Garfield Reynolds pointed out that the meeting is more of a routine , and the meeting is only to evaluate the prepaid interest rate and discount rate charged by the Fed to banks. , the exact same closed-door meeting held on January 18.

Rate hike path forecast

Last week’s higher-than-expected CPI data added to pressure on the Fed to take a firmer stance on surging prices, with major investment banks also raising their forecasts for a rate hike in 2022.

Citigroup currently expects the Fed to raise rates by 150 basis points this year, starting with a 50 basis point hike in March, followed by 25 basis points each at four meetings in May, June, September and December.

In a note to clients, HSBC economist Ryan Wang said the Fed will seek to tighten policy enough to allow inflation to start falling in the second half of the year. It is expected that the Fed will raise interest rates in the early stage, raising interest rates by 50 basis points in March, and will further raise interest rates four times during the year, each time of 25 basis points , and is expected to increase interest rates twice in 2023, each time by 25 basis points. In addition, the Fed is expected to start quantitative tightening in the third quarter.

In a note to clients, Goldman Sachs chief economist Jan Hatzius raised his forecast for the Fed to raise interest rates in 2022 to seven consecutive hikes of 25 basis points . He had previously forecast five rate hikes this year. Goldman Sachs still expects the FOMC to raise interest rates three times in the first three quarters of 2023 in a gradual, quarterly pace, bringing the terminal rate to its previous forecast of 2.5-2.75%. It said it saw a 50-basis-point rate hike in March, but thought the more likely path would be more 25-basis-point hikes.

Jefferies Group released a report that, as a reasonable basic situation, the Fed is currently expected to raise interest rates seven times this year, each time by 25 basis points, and does not rule out the possibility of raising interest rates by 50 basis points in March. The Fed has been reluctant to provide guidance, and in the current absence of guidance, a 50 basis point rate hike could be seen as a green light for expectations of larger rate hikes in May and June, or lead to tighter financial conditions. “The real ‘pain’ will begin in 2023, when monetary policy will take GDP from a 0.6% increase to a 0.3% contraction,” according to Jefferies’ updated model, which prices four rate hikes next year. .”

From the perspective of Fed officials, Bullard is currently supporting a 50 basis point rate hike in March. The Federal Reserve Bullard (the president of the St. Louis Fed, who has the right to vote on monetary policy this year) expressed his support for a 50 basis point interest rate hike and 100 basis points by July 1. Currently, Bullard’s plan includes raising interest rates in three installments, shrinking the balance sheet starting in the second quarter, and then deciding on the rate path for the second half of the year based on the latest data. He said he had not yet decided whether to raise interest rates by 50 basis points at the March meeting and would respect Powell’s decision.

Other Fed officials either opposed or thought it was premature to raise rates by 50 basis points. The Fed’s Barkin, who has a vote on monetary policy this year, said: “Conceptually open to raising rates by 50 basis points, but if I need to raise rates by 50 basis points now, I have to be persuaded . It is believed that the number of employment has risen, but we have not yet found out from the data, we will have the required data in March. Fed’s Daly said on Sunday that the central bank should proceed cautiously on the path to raising interest rates, which could backfire on economic growth and price stability . Daly also pointed to ongoing geopolitical tensions on the border between Russia and Ukraine as another factor adding uncertainty to the U.S. economy. She said financial markets had already priced in the Fed’s withdrawal of asset purchases and a rate hike next year.

Predicting the impact of cryptocurrency trends

The market is worried that the pace of interest rate hikes by the Federal Reserve will accelerate, which will affect the volatility of the US stock market and affect the trend of cryptocurrencies. Generally speaking, selling higher-risk assets has become one of the safe-haven strategies.

Ed Moya, senior analyst at Oanda, said that the increased pressure on high-risk assets has a direct impact on Bitcoin, and the price of high-risk products may fall by 40% at any time. According to JPMorgan, based on how volatile bitcoin is compared to assets such as gold, bitcoin’s fair value is only $38,000, which is 15% lower than its current price. However, JPMorgan strategists are still very bullish on Bitcoin’s long-term forecast, estimating that the future price of Bitcoin could reach $150,000, up from an estimate of $146,000 a year ago. Vanda Research pointed out that the unfavorable factors of Bitcoin have emerged, and the short-term pressure is believed to be due to the increase in liquidation, and it is confident that the price can remain at $47,000.

Goldman Sachs analysis believes that commodity (bitcoin is a commodity) price is unlikely to be suppressed by the Federal Reserve raising interest rates. “A rate hike will slow economic growth a year from now, but it won’t affect spot assets such as commodities, which price movements in the present rather than the future,” the investment bank said. This means that such physical assets do not Like other financial assets, they are exposed to the risks associated with the Federal Reserve’s interest rate. Against the backdrop of a bullish global economy , Goldman Sachs said, “there are rare good times to add commodities to portfolios as a hedge against inflation, geopolitical risks and potentially adverse market conditions.”

In addition, according to previous research on the blockchain and encrypted digital asset industry by Golden Finance and an interview with practitioner Gu Yanxi: “Don’t pay too much attention to the impact of the Fed’s policy on the price of bitcoin. The price of bitcoin is affected by many factors, but The Fed’s policy is not the main factor affecting bitcoin , because there is enough money in the market to determine the price of bitcoin. This is similar to the Fed’s policy will not affect the issuance of Tether. Even if the price of bitcoin will be affected by the Fed’s policy Changes due to the publication of the causal relationship are also false and temporary.”

Gu Yanxi said: “If a major global regulator takes regulatory measures against a major cryptocurrency exchange, it will have a much greater impact on the price of bitcoin. But even so, the impact will be very short-term. .”

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/doubts-about-the-fed-raising-interest-rates/
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