Macro Economy Weekly | Bitmidas
2023–09–26
Hawkish Sentiment Rises Again, Interest Rate Cut Postponed
The Federal Reserve kept interest rates unchanged in September, but the dot plot was more hawkish than expected. It is expected to raise interest rates once more this year. The expected rate cut narrowed by 50 bp and the time is extended, the era of 0 interest rates will not be seen in the next few years……
Important Data of the Week
The Federal Reserve’s interest rate decision in September kept interest rates unchanged at 5.25%-5.5%, marking the second this year that interest rates were kept unchanged. This is more hawkish than expected.
The Federal Reserve dot plot shows that the median expectations for the federal funds rate from 2023 to the end of 2025 are 5.6, 5.1%, and 3.9% respectively (The expectations in June were 5.6%, 4.6%, and 3.4% respectively), the rate cut will be 50 bp narrower than the last time and will be 2.9% by the end of 2026. The long-term remained at 2.5%.
The chart in the Federal Reserve’s economic expectations shows that most FOMC participants believe that PCE inflation and core PCE inflation are at relatively high levels. Uncertainty and risk tend to increase.
The Federal Reserve Economic Summary raised GDP growth from 1% to 2.1%, but the chart in the economic forecast shows that most of the FOMC participants believed that real GDP faces high uncertainty and that the risks are roughly balanced.
The number of initial jobless claims in the United States in the week ended September 16 was 20.1, the lowest since the week of January 28.
The final annual CPI value of the Eurozone in August was 5.2%, lower than the previous value and the forecast of 5.3%. Inflation has stagnated while trending down in general. The continued decline indicates that European interest rates may also be in a restrictive range, an attitude shared by ECB Governor Gabriel Makhlouf.
The OECD raised its global economic growth forecast to 3.0% in 2023 and lowered its forecast to 2.7% in 2024.
Federal Reserve Balance Sheet
The Federal Reserve’s balance sheet continues to shrink, with the current balance sheet shrinking significantly from US$74.689 billion to US$8024.09 billion. The plan is still proceeding as planned.
Recession Indicators-U.S. Debt Inversion
The Federal Reserve kept interest rates unchanged in September, and U.S. bond yields rose sharply, but the 2/10 inversion has relatively converged. As of this report, the 2/10 bond yield spread is at 67.62bp, still deeply inverted.
Market Performance
The Federal Reserve kept interest rates unchanged in September, supporting the U.S. dollar. Expectations for another interest rate hike within the year are still there, boosting the U.S. dollar. The U.S. dollar index once again strongly exceeded 105 during the week and continued to maintain its upward trend.
The Federal Reserve kept interest rates unchanged and is still expected to raise interest rates during the year, boosting the US dollar and suppressing gold, which is still at a low level and running between $2000~$1900.
The dot plot of interest rate cuts has been extended and the expected rate cuts narrowed. U.S. stocks were under pressure, with the S&P 500 falling and testing the support of 4300, and the U.S. stock market adjustment expanded.
Liquidity is still tight, and BTC, which requires a large amount of liquidity to drive prices, will undoubtedly fall into a longer period of consolidation.
Summary
This week, the Federal Reserve kept interest rates unchanged in September, but the latest dot plot shows that the 24-year interest rate cut cycle has been extended and the rate cut will be narrowed. The Federal Reserve’s economic forecast believes that PCE inflation, core PCE inflation is on the rise; the Fed’s tone was relatively hawkish. Fed Governor Bowman and Boston Fed President Collins said in their respective speeches that if the economic data does not cooperate, the Federal Reserve may still have to raise interest rates, which is overall more hawkish than market expectations. Zero-rate era is now considered far in the future.
The Federal Reserve raised its economic forecast for GDP but considered it to be of high uncertainty. The OECD raised its 2023 global GDP forecast. However, the economic growth for 2024 has been revised down. The global economy is still unstable.
Inflation in Europe is stubborn but continues to decline, and interest rate restrictions have taken effect. The Governing Council of the European Central Bank believes that it is close to or at the peak of its interest rate.
The United States and Europe are both in restrictive interest rate ranges. Subsequent inflation and economic data will follow. It seems that the governors are turning drastic interest rate hikes into fine-tuned models. Maintaining the high rate will dominate the market in the year to come.
Completion of this report: 2023–0923–10:12 (UTC+8)
