On the evening of April 18, Beijing time, Williams, President of the Federal Reserve of the United States, who enjoys permanent voting rights in the FOMC (Federal Open Market Committee), is known as the "Fed's third-in-command", delivered a speech. He warned that if the data shows that the Fed needs to raise rates in order to achieve its goals, then the Fed will raise interest rates. In the early morning of the 19th, Atlanta Fed President Bostic also said, "If U.S. inflation falls back to a stagnant or opposite direction, I must be open to raising interest rates;
As of the close, the S&P fell 0.22% and the Nasdaq fell 0.52%, both falling for five consecutive days, and most of the U.S. technology giants recorded losses. However, popular Chinese concept stocks bucked the trend and strengthened, with the Nasdaq China Golden Dragon Index rising 0.99%.
In addition, the Federal Reserve Bank of New York has signaled its monetary policy, and it is expected that the Fed may not stop shrinking its balance sheet until 2025. According to the New York Fed's latest annual report, the New York Fed's trading arm estimates that the reduction of the balance sheet, known as QT, could end in early or mid-2025.
Fed officials speak out
From the evening of April 18 to the early morning of the 19th, Beijing time, a number of senior Federal Reserve officials spoke intensively, releasing heavy signals, and even rarely mentioned the possibility of raising interest rates.
New York Fed President Williams warned that the Fed will raise interest rates if the data shows that the Fed needs to raise interest rates to achieve its goals.
However, Williams stressed that the aforementioned "rate hike" is not the baseline scenario he expected. He reiterated that the Fed's monetary policy is in a good position, while saying that he does not see an urgency to cut rates, although it will eventually be cut. Economic data will determine the timing of interest rate cuts.
Notably, Williams' latest speech was noticeably hawkish than his previous comments in the last week. In his latest speech, he focused on the upside risks to inflation. In stark contrast, Williams said a few days ago that he did not see the recent U.S. inflation data as a turning point, and he emphasized more on the prospect of rate cuts, "If inflation continues to come down gradually, the Fed may start cutting rates this year." ”
Nick Timiraos, a reporter for the Wall Street Journal, known as the "new Fed news agency", believes that compared with Fed Chairman Powell's speech, the "Fed's third-in-command" mentioned the scenario of interest rate hikes, which is relatively more lethal to the market.
As of the close, the S&P and Nasdaq both fell for five consecutive days, with the S&P falling 0.22%, the longest losing streak since October last year, the Nasdaq falling 0.52%, refreshing the low closing level since February 21 for four consecutive days, and the Dow barely closing up 0.06%.
MOST OF THE U.S. TECH GIANTS RECORDED LOSSES, TESLA FELL 3.55%, HITTING A NEW CLOSING LOW SINCE JANUARY THIS YEAR, MICROSOFT FELL 1.84%, AMAZON FELL 1.14%, APPLE FELL 0.57%, GOOGLE ROSE 0.35%, NVIDIA ROSE 0.76%, META ROSE 1.54%. In addition, TSMC ADR closed down 4.86%, and the latest financial report showed that the revenue in the first quarter was NT$592.64 billion, a year-on-year increase of 16.5% and a decrease of 5.3% quarter-on-quarter.
Popular Chinese concept stocks bucked the trend and strengthened, with the Nasdaq China Golden Dragon Index up 0.99%, Weibo up more than 3%, Tencent Music, NetEase, and Weilai up more than 2%, Li Auto, Full Bang, Baidu, and JD.com up more than 1%, and Futu Holdings, iQiyi, Bilibili, Pinduoduo, and Alibaba rose slightly. In addition, 3x long FTSE China ETF-Direxion (YINN. US) closed up more than 5%.
In the early hours of April 19, Minneapolis Fed President Kashkari said he was surprised by the resilience of the U.S. housing market. Once inflation continues to fall back to 2%, interest rates can be cut, and patience will be needed until we are convinced that inflation will come down, possibly until 2025. As the political heat rises, the Fed is more focused on its mission.
In addition, Atlanta Fed President Bostic also sent a "hawkish" signal in his latest speech, saying that interest rates are expected to remain stable for most of the year and should not be cut until near the end of the year, "Inflation is high, too high, we need to get it to the 2% target, and I am willing to be patient." The Fed is still expected to cut rates once this year."
Bostic also made a rare statement about raising interest rates, stressing that "if inflation in the United States comes back to a halt or goes in the opposite direction, I must be open to raising interest rates, and it is important to control inflation." If inflation comes down faster than we expect, we may cut rates sooner."
Exposure at important times
The Federal Reserve Bank of New York is signaling monetary policy, and it is expected that the Fed may not stop shrinking its balance sheet until 2025.
On April 17, Eastern time, the New York Fed released its annual report, saying that the trading department of the Federal Reserve Bank of New York estimated that the reduction of the balance sheet (so-called QT) could end in early or mid-2025. By the next year, bank reserves will fall to around $2.5 trillion to $3 trillion.
The latest minutes also showed that at the Fed's monetary policy meeting in March, Fed officials had begun to discuss plans to slow down QT, although no decision was made at the meeting.
Fed officials believe it is appropriate to take a cautious approach given the market turmoil in 2019, when the Fed last tried to shrink its portfolio, and that "the vast majority of participants believe it is prudent to start slowing the pace of balance sheet reduction fairly soon," the minutes said. ”
Under the high reserves scenario outlined in the New York Fed report, the balance sheet size would shrink to around $6.5 trillion, while in the "low reserves" scenario, the balance sheet size would fall to $6 trillion.
The minutes of the March meeting also showed that Fed officials were generally inclined to maintain the existing cap on mortgage-backed securities, subject to an adjustment to the Treasury cap.
Since the current round of monetary tightening, the Fed has been reducing its holdings of US Treasuries and mortgage-backed securities at a rate of up to $95 billion per month. Wall Street strategists expect the Fed to lower the monthly cap on the size of the US Treasury balance sheet from $60 billion to $30 billion, while keeping the cap on mortgage-backed securities (MBS) unchanged.
IMF Warning
On April 18, local time, International Monetary Fund (IMF) Managing Director Georgieva pointed out that the world is paying attention to the United States, and the question that everyone is most concerned about is: "What will happen to inflation and interest rates in the United States? What kind of policy will the Federal Reserve take? How will the United States respond to this world where government policies are increasingly intervening?"
In this regard, Georgieva said that the Fed's current approach is correct, and we should not expect a rapid decline in interest rates. At the same time, the IMF is optimistic that the conditions for the Fed to start cutting interest rates will be met this year.
Georgieva also mentioned that the continued strength of the dollar is a "concern" for other currencies, and that other countries are concerned about how long the dollar's strength will last.
Under the background of the strong dollar, the "currency defense war" of many countries is about to start. In response, Krishna Srinivasan, director of the IMF's Asia-Pacific region, said at a press conference on Thursday: "The IMF analysis shows that US monetary policy has a strong and direct impact on financial conditions and exchange rates in Asia. ”
At the same time, he pointed out that each Asian central bank should tailor its policy to its own inflation situation to avoid over-relying their policy on expectations of the Fed's future actions.
He warned that if central banks follow the Fed's policies too closely, it could undermine price stability in their countries.
He suggested a "tighter for longer" stance in economies with high inflation, and more accommodative in economies with large spare capacity (i.e., output below potential).
Editor-in-charge: Lin Gen
Proofreader: Wang Wei