On March 16, US Eastern time, the Federal Open Market Committee (FOMC) announced a decision on interest rates, raising the benchmark interest rate by 25 basis points to a range of 0.25% and 0.50%. This is the first time that the Fed has raised interest rates since December 2018, in line with market expectations.

At the same time, the bitmap released by the Federal Reserve after this meeting shows a hawkish stance. According to the bitmap, 75% of officials expect interest rates to rise six more times this year (that is, at the remaining six meetings this year), and the benchmark interest rate will reach about 1.9% by the end of 2022 (Fed officials predict the median).

Powell, chairman of the Federal Reserve, said at a press conference after the meeting that it was appropriate to continue to raise interest rates, with inflation still well above target and high for longer than expected. "if it is appropriate to take more action quickly, the Fed will do so." In addition, Powell also said that this meeting has made good progress on the table reduction plan, which will be faster than last time, and said it could be announced as early as May. On the economy, Powell said that the possibility of a recession in the United States is not particularly high, and all signs are that the economy is strong and that the current economic conditions can withstand tight monetary policy.

The Fed's next interest rate meeting will be held from May 3 to 4, US Eastern time. Since the March meeting, Fed officials have delivered speeches in turn, during which they have released the minutes of the March meeting and the heavyweight data of the US Consumer Price Index (CPI) in March, and there have been growing calls for the Fed to raise interest rates by 50 basis points in May.

Guided by intensive speeches by Fed officials, it seems certain to raise interest rates by 50 basis points in May, and there is no shortage of views that the Fed will hit a combination of "raising interest rates by 50 basis points + shrinking the table" in May.

I. the Federal Reserve: all hawks

A number of Fed officials have made comments about raising interest rates or shrinking their tables in the near future after the March meeting, and we focus on reviewing the statements made by the FOMC voting committee in 2022.

1. Powell: promise to fight high inflation and raise interest rates by more than 25 basis points at a single time if necessary

Less than a week after the March meeting, Federal Reserve Chairman Powell reiterated FOMC's position in the statement after the March meeting. Mr Powell promised to take tough action on inflation, saying: "if necessary, the Fed will raise interest rates by more than 25 basis points at a time; if the Fed needs to raise rates above neutral rates, we will do so." "We will take the necessary measures to ensure that price stability is restored. In particular, if we conclude that more aggressive action is appropriate in one or more meetings, we will do so. "

Powell also spoke of the situation in Russia and Ukraine, saying that the conflict was increasing supply chain and inflationary pressures. "the risk of long-term high inflation is rising, which could push long-term expectations to disturbing levels, which highlights the need for the committee to act as quickly as I have described."

Powell attended a seminar hosted by the International Monetary Fund (IMF) in Washington on Thursday, Powell's last public speech before the May FOMC meeting. Powell's speech unexpectedly continued the previous tough position. He said it was possible to announce a 50 basis point increase in interest rates at the May meeting, followed by similar increases. "in my opinion, it is appropriate to raise interest rates a little faster than the Fed has recently raised interest rates. I also think that there are some ideas of planning ahead in the process of withdrawing the stimulus measures. "

"the market is dealing with what we see," Powell said. Overall, their response is appropriate, but I don't want to support any particular market pricing. The May meeting will discuss raising interest rates by 50 basis points. " With regard to inflation, which is highly concerned by the market, Powell pointed out that it is absolutely necessary to restore price stability, without which the economy cannot function.

2. "Eagle King" Brad: the benchmark interest rate should be raised to 3.5%, and the possibility of raising interest rates by 75 basis points cannot be ruled out.

As the only FOMC member who voted no and advocated a 50 basis point increase in interest rates at the Fed's March meeting, James Bullard, a big hawk and chairman of the St. Louis Fed, made the first speech after the meeting. On March 18, Brad said that the current inflation rate in the United States is too high, and that the US economy is flexible enough to face higher interest rates, and that raising interest rates by 50 basis points is a better option.

In addition, he suggested that the FOMC set the policy rate above 3 per cent this year; by contrast, the median forecast given by the FOMC is 1.9 per cent by the end of 2022. "the strong performance of the real economy and unexpectedly high inflation mean that FOMC's current monetary policy interest rates are too low to prudently manage the macroeconomic situation in the US," he said in a statement.

On April 7, Brad released the eagle again. Brad points out that the rules-based approach suggests that the fed needs to raise its benchmark short-term borrowing rate to about 3.5% to control inflation. "if you take forward guidance, it's not that bad," Brad said. "it's still behind the curve, but it's not as big as it seems." It is worth noting that Brad's 3.5% proposal is much higher than the market's pricing of interest rates; the data show that the market expected the fed's benchmark interest rate to reach 2.5% 2.75% at the time.

On April 18, Brad's remarks shocked the market again. Brad believes the Fed needs to act quickly this year, raising interest rates by 50 basis points several times. In addition to reiterating that interest rates should be raised to around 3.5 per cent, Mr Brad said a 75 basis point increase should not be ruled out. "at present, raising interest rates by more than 50 basis points is not my basic assumption, but I will not rule it out." He pointed out, for example, that Greenspan's Federal Reserve made a similar rate hike in 1994, followed by a decade of economic expansion.

3. "second leader" Brainard: will quickly raise interest rates to the neutral level

On April 5, Fed governor and vice chairman nominee Brainard made his first speech in months to change his dovish stance. "the Federal Open Market Committee will continue to tighten monetary policy methodically, including a series of interest rate hikes and a rapid contraction at its May meeting as soon as possible," Brainard said. "

Brainard said she was also looking at the yield curve and other data for signs of increased downside risks to economic activity. In addition, Brainard also talked about shrinking tables, and she believes that given that the economic recovery is significantly stronger and faster than the previous cycle, she expects the balance sheet to contract much faster than the last one. "at present, inflation is too high and there are upside risks," she said. If inflation and its expected indicators indicate the need for action, the Committee is prepared to take stronger action. "

On April 12, Brainard said in a speech that the Fed will raise interest rates "quickly" this year to a level that will neither stimulate nor slow economic growth. She also said the Fed has the ability to cool inflation without harming the labour market. "We are achieving this by methodically tightening monetary policy, and we are going to raise interest rates and start shrinking the table." The decision "could be made as early as May and implemented in June," she said. " As for the economy, Brainard pointed out that the weakening of fiscal stimulus, the slowdown in international economic growth and the tightening of the financial environment should begin to slow overall demand and reduce job vacancies, while labor supply will continue to increase, that is, to achieve the Fed's proposed "soft landing" scenario.

4. "three hands" Williams: raising interest rates by 50 basis points in May is a reasonable choice.

John Williams, chairman of the New York Fed, said on March 25th that raising interest rates by 50 basis points was an option if the data proved necessary. That means Mr Williams did not rule out the possibility that the Fed would raise interest rates by 50 basis points at its May monetary policy meeting. "if it is appropriate to raise interest rates by 50 basis points or 25 basis points at a meeting, then I think we should do so," he said. I don't see any reason not to take one of them. We just need to make the right decision based on the economic situation we see. " However, Mr Williams also said that in spite of the very high inflation figures, medium-and long-term inflation expectations had "remained fairly stable", while warning that "policy action must strengthen this equilibrium". At the same time, he believes the Fed is expected to start shrinking its balance sheet by the end of the year.

On April 14, Williams once again called for a 50 basis point increase in interest rates. The baseline assumption, he said, was that neutral interest rates were still in the low range of 2-2.5 per cent. He believes that the speed of raising interest rates depends on the trend of the economy, but it is reasonable to raise interest rates by 50 basis points at the next meeting; on the contraction side, if the Fed makes a decision in May, it will start the work in June.

5. Waller: neutral interest rates need to be reached in the second half of this year

Christopher Waller, governor of the Federal Reserve, said on March 18 that in order to curb "raging" inflation, the Fed should consider raising interest rates by 50 basis points at future meetings and start shrinking the table in July. "I do prefer to put our interest rate increases mainly in the early stages, because if we want to have an impact on inflation after this year and next year, we need to do more to withdraw from easing now," he said. " "therefore, the way to eat heavily in the early stage means to advance some rate increases, which implies that interest rates will be raised by 50 basis points at one or more meetings in the near future."

In terms of downsizing, Waller said that the Fed's balance sheet is much larger than it used to be, and the economic situation in the United States is very different from that in the past. So the Fed is in a situation where "even if we could pull a lot of liquidity out of the system, it wouldn't really do much harm."

On April 14th Waller reiterated his support for a 50 basis point rate hike in May. Mr Waller said the US economy could withstand aggressive policy tightening, preferring to raise interest rates by 50 basis points in May and possibly more in June and July. "We certainly hope to reach above the neutral rate by the second half of this year, and we need to get close to the neutral level as soon as possible."

6. George: raising interest rates by 50 basis points is an option that must be considered.

George, chairman of the Kansas City Fed, who has always been hawkish, said on March 30th that policymakers should raise interest rates in the face of soaring inflation, but that the pace of rate hikes may need to be cautious in order to monitor economic development during austerity. "given the state of the economy, inflation is at a 40-year high and unemployment is near record lows, it is appropriate to start taking a neutral policy stance quickly," she said. "

But Mr George added: "recognising the risks to the economic outlook is not a reason to stop withdrawing loose policy, but it does imply that the policy track should be sound and prudent, providing room for real-time monitoring of developments." It is clear that [the Fed] needs to withdraw from easing, but how much and how aggressively it should be withdrawn is less certain. " She believes that there will be a soft landing, with the possibility of slower growth and lower inflation, but not a recession.

On April 5th, George further said that raising interest rates by 50 basis points is an option that must be considered; there is "no doubt" that the easing policy must be cancelled; and that the May adjustment needs to exceed the neutral policy to curb inflation.

7. Mestre: raise interest rates to around 2.5% by the end of the year

Mestre, chairman of the Cleveland fed, said on march 22nd that he hoped to raise interest rates to around 2.5% by the end of the year. Mestre believes that the Fed needs to raise interest rates more sharply in the first half of the year and tighten policy further next year to reduce high inflation so that it does not become entrenched.

She said: "I think it is attractive to raise interest rates at an early stage rather than at a later stage, because if the economic development is different from expectations, raising interest rates earlier will put policy in a better position to adjust. If inflation has not begun to ease by the middle of this year, we can speed up the rate of interest rate hike. However, if inflation falls faster than expected, we may slow the pace of interest rate hikes in the second half of the year. " In addition, as for the contraction, Mestre said that even if the Fed chose to raise interest rates while announcing its plan at the same meeting, she did not think it would be damaging.

On April 10th Mestre said she believed the US would avoid a recession as the Fed tightens policy, although inflation is likely to remain above 2 per cent next year. While the risk of recession has increased, she is "optimistic that the Fed can cancel monetary easing and maintain good labour market conditions and expansion," she said. " A few days later, Mestre once again expressed confidence that the Fed could control inflation without damaging the economy.

8. Huck: inflation is widespread and excessively high. The Fed should quickly raise interest rates to 2.5%.

Patrick Harker, the previously neutral chairman of the Philadelphia Fed, said on March 29th that the FOMC was expected to raise interest rates carefully and methodically (several times) in 2022, not ruling out a 50 basis point rate hike by the Fed. He said the Fed should quickly raise interest rates to neutral rates, which are expected to be 2.5 per cent. In addition, he said, "it is preferable for the FOMC to shrink its balance sheet sooner rather than later." And the Fed is expected to start shrinking its schedule "soon". On the inflation side, he expects inflation in the United States to be about 4.0% in 2022, before falling back.

On April 14, Mr Huck expressed concern about inflation, saying: "generous fiscal policy, supply chain disruptions and loose monetary policy have pushed inflation much higher than is acceptable to me and my FOMC colleagues." He also said he was concerned that inflation expectations had become "out of control" and expected a series of planned and structured interest rate increases this year to reduce widespread and excessively high inflation.

In addition to the voting committees, the speeches of other Fed officials are also noteworthy.For example, Chicago Fed Chairman Charles Evans, who has always been partial, made hawkish remarks on April 19th. He said he was satisfied with the path of raising interest rates this year, including two 50 basis points, and expects interest rates to rise to 2.25 per cent by the end of the year. He believes that given the inflation outlook, the Fed is likely to raise interest rates above the "neutral" level next year.

At the end of the Fed's "period of silence", Mary Daly, chairman of the San Francisco Fed, long regarded as a dovish official within the Fed, called for the Fed to raise interest rates "quickly" to reach neutral levels by the end of the year, possibly around 2.5 per cent. She said it was "possible" to raise interest rates by 50 basis points in future meetings as the Fed raised interest rates to curb inflation. Daley pointed out that a purposeful shift to a more neutral monetary policy position that does not stimulate the economy is a top priority for the Fed.

Taken together, the Fed's voting committee is a hawk, and even a few Fed officials who have always been moderate before have resolutely turned the eagle. The majority of the Fed's voting committee basically favors or supports raising interest rates by 50 basis points at its meeting in May and expects to raise them to neutral levels of about 2.5 per cent by the end of the year. There are also extreme hawk voting committees like Brad who have announced that interest rates will rise to 3.5% by the end of the year and throw out the potential option of raising interest rates by 75 basis points at a time.

As for the shrinking table, the Fed voting committee referred to the closely watched time point of May and pointed out that the shrinking process may be accelerated. As for the economy, the Fed voting committee almost unanimously believes that the US economy can achieve a "soft landing" in the event of the Fed tightening monetary policy, and that there may be a slowdown in economic growth, but there will not be a recession.

Under the careful guidance of the Federal Reserve, expectations of a 50 basis point rate hike in May have intensified. Many big Wall Street banks took a more radical view after Fed officials spoke.

Goldman Sachs Group has previously said that the Fed is expected to raise interest rates by 50 basis points at its meetings in May and June and five increases in 2023, eventually reaching 3.25 per cent. Citigroup Inc believes that interest rates will be raised by 50 basis points in May, June, July and September, and is expected to rise by 25 basis points in October and December. "We now expect the Fed to continue to raise interest rates at every meeting," said Citigroup Inc, an economist. Until May 2023, interest rates reached a range of 3.25%. This means that the final interest rate range will be 25 basis points higher than previous forecasts and will be reached seven months ahead of schedule. " Morgan Stanley expects the Fed to raise interest rates by 50 basis points in May and June and to shrink the table from May.

II. Minutes of the Federal Reserve meeting in March: adding fire to a sharp rise in interest rates

The minutes of the March Fed meeting not only reinforced expectations that the Fed would raise interest rates by 50 basis points in May, but also showed the tendency of the Fed to raise interest rates sharply several times and tighten monetary policy by tightening the table faster.

"many participants pointed out that it may be appropriate to add one or more 50 basis points to the target at future meetings, especially if inflationary pressures remain high or intensified," the minutes said. it is appropriate to quickly shift the monetary policy stance to a neutral stance. " This can almost be interpreted as raising interest rates by 50 basis points in May. According to the minutes, many Fed officials had hoped to raise interest rates by 50 basis points instead of the 25 basis points announced last month, but they changed their decision in view of the conflict between Russia and Ukraine.

With regard to the shrinking table, the minutes show: "participants agreed that they had made significant progress on the plan and that the Committee was ready to start reducing the size of the balance sheet as early as after the May meeting." Fed officials "generally agree" that the monthly contraction ceiling amounts to $95 billion (about $1,000bn a year), which is a ceiling of $60 billion for Treasuries and $35 billion for mortgage-backed securities. that is almost double what it was when the Fed shrank its balance sheet between 2017 and 2019. Most participants were of the view that if market conditions permitted it could be adjusted to the maximum limit of the contraction table in phases over a period of three months or a little longer. Some participants said they were satisfied with the relatively high monthly ceiling or no ceiling. In addition, FOMC is expected to approve a reduction in its balance sheet at its May meeting, according to the minutes.

In addition, participants considered that it was appropriate for monetary policy positions to quickly shift to neutrality, that is, to raise interest rates to 2.4 per cent and 2.5 per cent by the end of the year. It is worth noting that the Fed has not tightened by as much as 250 basis points a year since 1994, and the last more radical rate hike was when Volcker took the helm of the Fed in the early 1980s.

The minutes not only reinforced market expectations of a 50 basis point rate hike by the Fed in May, but also outlined a clear and aggressive tightening path. In this summary, the Fed has made it clear to the market that it has raised interest rates sharply, shrank its schedule faster and made its determination to take tough measures to fight inflation.

Third, the US CPI shows high inflation again in March to strengthen the Fed's determination to raise interest rates.

After rising 7.9 per cent in February from a year earlier, unseasonally adjusted CPI in the US rose 8.5 per cent in March from a year earlier, continuing to hit a 40-year high and higher than expected of 8.4 per cent, according to data released by the Labor Department on April 12th.

Meanwhile, core CPI, which excludes food and energy, rose 6.5 per cent from a year earlier, below market expectations of 6.6 per cent and up slightly from 6.4 per cent in February, and 0.3 per cent from a month earlier, down from 0.5 per cent expected. The performance of the core CPI was "weak" enough that Wall Street began to hype about "inflation peaking", which lowered expectations of a 50 basis point Fed rate hike in May. Many economists expect this round of inflation to peak in March as the CPI data reflect the impact of soaring food and energy prices in the wake of the conflict between Russia and Ukraine, both of which have fallen.

Us inflation burst in March, driven in large part by record high petrol prices, food and housing costs. In addition, the index of used cars and trucks, a key factor that has been driving up core inflation, fell 3.8 per cent, the biggest drop since 1969.

However, some data in the inflation report went unnoticed: service prices rose 5.1 per cent year-on-year, the biggest increase since 1991; housing prices rose 5.0 per cent year-on-year, up from 4.7 per cent in February and the highest level since May 1991; rents rose 4.44 per cent year-on-year, up from 4.17 per cent in February and the highest level since May 2007. These figures mean that price pressures have begun to spread to a number of areas.

Even if the lower-than-expected core CPI becomes an important basis for the market to believe that inflation has peaked, the year-on-year increase in overall inflation is still the focus of policy makers. The rising inflation data have increased the pressure on the Fed to continue to raise interest rates this year to cope with inflation and increased market expectations that the Fed will raise interest rates by 50 basis points next month.

Fourth, under the warm-up of the Federal Reserve's eagles, the market is waiting for the May meeting.

As of April 22, the market expected the Fed to raise interest rates by 25 basis points by May by 0.2 per cent, by 50 basis points by 99.8 per cent and by 75 basis points by 0 per cent, according to CME Fed Watchtool. A month ago, the market expected the fed to raise interest rates by 50 basis points in may with a probability of only 63.9 per cent and by 25 basis points was 36.1 per cent.

Before Federal Reserve Chairman Powell delivered his closing speech before the "silence period" on April 21, after nearly a month of eagle release by Fed officials, US short-term interest rate traders have taken the initiative to push up the implied probability of the Fed raising interest rates by 50 basis points each time in May and June to 100 per cent.

CME Fed Watchtool data showed that after Powell's closing speech, the market had fully digested expectations of a 50 basis point rate hike in May. In addition, traders are betting that the Fed will raise interest rates by 50 basis points each at its May, June and July meetings. "it makes sense to raise interest rates by 50 basis points in May and June, and 50 basis points in July will depend on how the data perform in the coming months," said Ben Jeffery, interest rate strategist at BMO Capital Markets.

The market is also betting on the possibility of raising interest rates by 75 basis points in June, which is 74.2 per cent, compared with 63.8 per cent when interest rates are expected to reach 2.25 per cent in July.

As of press time, the yield on policy-sensitive two-year Treasuries in the US Treasury market also rose to a cyclical high of nearly 2.74 per cent, the highest level since December 2018, up from about 0.75 per cent at the start of the year.

The gradual shift in market expectations means that the Fed, which is particularly good at communicating with the markets, succeeded in convincing people before its May meeting that it would raise interest rates by 50 basis points and shrink the table at the meeting. to achieve its goal of accelerating monetary tightening. In demonstrating the Fed's determination to fight inflation, this will help avoid the severe turmoil that the Fed will bring to the markets when it announces the policy decision. Now that the market has set the stage for the Fed, it is time for the Fed to sing the big show.