1. The "big gesture" continues to escalate: recently, most Fed officials have expressed their position to turn to the eagle.

Recently, most Fed officials have made a U-turn. In May, the Fed raised interest rates by 50bp and discussed shrinking the table.Since April, most officials who were neutral in their early positions (who have not clearly expressed their support for 50bp) have made it clear that they support the 50bp increase in May and have begun to consider the idea of raising interest rates in advance.

In addition, the position on the end point of raising interest rates is generally in support of raising interest rates to or above neutral interest rates.(the Fed is currently forecasting a neutral interest rate of 2.4 per cent, according to forecasts released at the FOMC meeting in March.) Bullard, the most hawkish, supports raising interest rates to 3.5 per cent this year. Judging from the experience of the last interest rate hike cycle, the end point of the rate hike is flat at the Fed's neutral rate level, which shows that the current guidance of Fed officials on interest rate hike expectations is too hawk.

Guided by the hawkish expectations of Fed officials, the market has begun to expect a series of interest rate increases 50bp, or even a single rate increase 75bs.According to CME's estimate of interest rate hikes, the market now expects a 97.6 per cent chance of a 50bp hike at the FOMC meeting in May, a near certainty for 50bp in May, and a 77 per cent chance of a 75bp hike in June and another successive 50bp hike in July.As US inflation has not yet peaked, the Fed will most likely maintain a more aggressive hawkish stance to curb inflation expectations.Under the expectation of the hawks, the real interest rate of 10Y US debt is close to becoming a regular employee, pushing up the nominal interest rate of 10Y US debt quickly above 2.9%.

In February and April, the beige book paid more attention to inflation.

At the same time, in the April beige book released by the Federal Reserve this week, we can see that the concern and expression of inflation in the beige book has further increased compared with March, reflecting the increasing importance of inflation in the Fed's policy decisions. In addition, in terms of economic fundamentals, the current situation of commercial real estate and manufacturing has improved, service consumption has also improved positively under the easing of the epidemic, and the background of moderate growth in economic activity has laid the foundation for the Fed to tighten monetary policy more quickly.Specifically, the Fed's April beige book showed three changes: 1, more optimistic feedback on real estate and manufacturing; 2, rising inflation exacerbated wage pressure, both of which may have spiralling pressure; rising prices have a negative impact on sales.

3. Supply chain improvement + inflation may peak, Fed hawkish posture may have reached its peak

Recently, the problem of transportation tension in the United States has improved significantly.Port transportationOn the demand side, the container throughput of the United States is still high; but on the supply side, employment in shipping services in the United States has returned to its pre-epidemic level, and congestion in major ports in the United States, such as Los Angeles Port and long Beach Port, has significantly improved.In terms of land transportOn the demand side, the demand in the road transport market is lower than that in 2021, and the pressure on transport demand is alleviating; on the supply side, the number of available trucks has increased significantly compared with the same period last year, the number of truck transport employment has been higher than the pre-epidemic level, and the delay time of truck transportation has also been greatly reduced. Therefore, on the whole, the tight supply of port and land transport has improved obviously, and the pressure on inflation has weakened.

Inflation is likely to peak in the second quarter, and the Fed's extremely hawkish posture may have peaked..By calculating the conditions required for US inflation to peak in the second quarter, we can see that if Q2 US CPI does not peak compared with the same period last year, Q2's CPI month-on-month average needs to be more than 0.9%. Since 1957, months with a month-on-month ratio of more than 0.9% account for less than 10%, so Q2 US inflation is more likely to peak. Superimposed by the improvement of the current supply chain conditions, the inflationary pressure on the supply side may also be alleviated.If Q2 inflation peak, the Fed may no longer need to use extremely hawkish tightening posture to curb inflation expectations, then the Fed's forward guidance and actual tightening operations may be relatively moderate, the Fed hawkish posture may be expected to peak.

Risk hint: higher-than-expected US inflation