Macro Economy Weekly | Bitmidas
2023–09–11
The Fed Collectively Being Hawkish and There’s Still Room for Rate Hikes
The ISM non-manufacturing index surged sharply, service costs rose, and Federal Reserve officials made intensive hawkish statements. Interest rates still have room to rise. The data weakened the risk of recession, but the risk factors for recession are increasing.……
Important Data of the Week
The ISM non-manufacturing index in the United States rose to 54.5 in August, far exceeding the previous value of 52.7, a new high since February 2023. This result surprised all. The data shows the lasting strength of consumer demand and the overall economy.
PMI US August ISM non-manufacturing price index recorded 58.9, higher than the previous value of 56.8, a four-month high for two consecutive months. The continued rise in service provider costs may keep inflation higher for a longer period of time.
The number of initial jobless claims in the United States in the week ending on September 2 was 21.6, lower than the previous value of 22.9 and the market forecast of 23.4, a new low since the week of February 11, 2023. The labor market still needs to cool down.
Currently, the U.S. federal fund rate has been raised to 5.25%~5.5%, the actual interest rate is 1.8% and the neutral interest rate is 0.58%, which is obviously restrictive.
Although Fed officials have made intensive hawkish statements this week, the actual interest rate has exceeded the neutral interest rate and been restrictive, the market’s probability of keeping interest rates unchanged in September is still over 90%.
The Federal Reserve’s latest Economic Beige Book shows that labor market growth slowed in July and August, and most regions experienced moderate economic growth. Most officials said that one or more interest rate hikes may be needed to completely cool down price pressures, but they are also worried that drastic actions will stimulate economic recession.
Unlike the strong consumption shown by the ISM non-manufacturing sector, the Beige Paper shows evidence in some regions that consumers have exhausted their excess savings and begun to finance purchases, with some regions reporting an increase in delinquency rates, a sign of recession risk.
Federal Reserve Balance Sheet
The Federal Reserve’s balance sheet continues to shrink, with the current scale shrinking by US$19.998 billion to US$8.101318 billion. The balance sheet reduction plan is still in progress as originally planned.
Recession Indicators-U.S. Debt Inversion
This week’s ISM non-manufacturing PMI exceeded expectations, strengthening consumption and the economy, slowing down the probability of economic recession, and providing conditions for raising interest rates within the year. Nevertheless, the market is still not relaxed about the recession. As of the time of this report, the 2/10 inversion has expanded to 73.08bp, still deeply inverted.
Market Performance
This week, the ISM non-manufacturing PMI far exceeded expectations, weakening the recession and strengthening expectations for interest rate hikes. Many officials from the Federal Reserve were intensively hawkish, and the US dollar strongly exceeded 105, running strongly.
ISM non-manufacturing PMI weakened the recession and boosted the US dollar. Federal Reserve officials’ hawkish remarks suppressed gold. Gold continued to run weakly below $2,000.
After the S&P 500 rebounded with support in the 4330 area, it then retreated due to this week’s ISM non-manufacturing data and Fed officials’ hawkish remarks. The short-term stock goes sideways.
This week’s macro data is bullish for the US dollar and suppresses the Non-dollar assets and BTC. BTC has slightly increased the height of the sideways range in the short term but has not stabilized above the $26,200 area. The overall volume is still shrinking in a narrow range. Weak sideways.
Summary
The U.S. ISM non-manufacturing index rose to 54.5, a new high since February 2023. According to the survey, no economist predicted this result. The data weakened the probability of a U.S. economic recession. On the other hand, the Beige Book shows that the U.S. economy and job market slowed in July and August, and consumption remained strong, but consumers have exhausted their savings and turned more to borrowing to finance purchases. The increase in consumer credit overdue rates will increase the potential risks of a recession.
Although many Federal Reserve officials remain hawkish, the current actual interest rate has exceeded the neutral interest rate and is restrictive. To prevent an economic recession, some officials would choose to skip the rate hike in September. The interest rates remaining unchanged in September is still a high-probability scenario.
The data before the FOMC meeting, especially the CPI, are crucial. If the CPI is greater than the previous figure, there will be another rate hike within the year. If it is lower or equal to the previous value, the interest rate maintenance phase will soon be priced.
Completion of this report: 2023–0909–10:00 (UTC+8)
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