On Thursday, New York Federal Reserve Chairman Williams, known as the “top three in the Federal Reserve,” delivered a speech. He warned that if the data shows that the Fed needs to raise interest rates to achieve its goals, then the Federal Reserve will raise interest rates.

However, Williams stressed that the “rate hike” described above was not the baseline situation he expected. He reiterated that the Federal Reserve's monetary policy is in a good position. At the same time, he said that he does not feel that cutting interest rates is urgent, even though they will eventually have to cut interest rates. Economic data will determine when to cut interest rates.

Notably, Williams' latest speech was clearly more hawkish than his earlier comments in the last week. In his latest speech, he focused on the upward risk of inflation. In stark contrast to this, Williams said a few days ago that he doesn't think the recent US inflation data is a turning point. He placed more emphasis on the prospects of interest rate cuts. “If inflation continues to gradually decline, the Federal Reserve may start cutting interest rates this year.”

After Williams only mentioned the possibility of interest rate hikes, the brief rebound in the US Treasury bond market came to an abrupt end, and the S&P index went back up and down in early trading:

• US two-year Treasury yields climbed 5 basis points to nearly 4.99%, close to the high end of the recent range. This week, the two-year US Treasury yield, which is sensitive to monetary policy, once hit a level slightly above 5%, the highest since November last year.

• US 10-year Treasury yields rose more than 5 basis points in the intraday period to 4.653% in the early hours of Friday morning Beijing time.

• The pricing of the swap market shows that the Federal Reserve cut interest rates had a cumulative total of 38 basis points during the December policy meeting, and by the close of Wednesday, the rate cut was 43 basis points; the market still expects the Federal Reserve's November policy meeting to begin the first 25 basis points of interest rate cut in the year.

• The market's implied possibility of interest rate hikes is still close to 0. However, in the interest rate options market, protection against interest rate hike scenarios has become popular.

• The S&P and NASDAQ fell five times in a row.

The “shift” in Williams's speech position occurred after Federal Reserve Chairman Powell's public speech this week. Powell said this week that inflation lacks further progress, so it may be appropriate for high interest rates to work for a longer period of time. The “New Federal Reserve News Agency” commented that the Fed's outlook has clearly changed, which seems to have broken their hopes that they may “pre-emptively” cut interest rates.

The Wall Street News website mentioned that at a time when Powell is undermining the market's interest rate cut expectations this week, one of the main reasons is that, as stated by the “New Federal Reserve News Agency,” Powell hinted that if inflation continues to be above 2%, interest rates may remain high for a longer period of time, which means that if inflation is slightly higher than expected, additional interest rate hikes are unlikely. Therefore, in contrast to Powell's speech, the “three leaders of the Federal Reserve” mentioned the interest rate hike scenario, which is relatively more lethal to the market.

The above analysis article also mentioned that the market trend was relatively stable on the day of Powell's speech, which is related to the fact that many senior Federal Reserve officials have given “vaccinations” to the market. Furthermore, corporate profits have replaced monetary policy as the main driving force for fluctuations in US stocks.

After the US stock market on Thursday, Atlanta Federal Reserve Chairman Bostic also said he is open to raising interest rates if US inflation rises. This means that more and more senior Federal Reserve officials are referring to the “interest rate hike” scenario, which is completely different from the previous few months.

Bostic also said on the same day that the Federal Reserve's current interest rate policy is restrictive. The US economy is slowing down, but at a slow pace. Wages are growing faster than inflation. Inflation is on track to fall back towards the 2% target. The Federal Reserve is in no hurry to get inflation back to 2%; it can be patient.

It should be noted that with the Federal Reserve's overall attitude changing, US bond yields have recently surged, and Wall Street warned of a “return to the 5% era” in the short term. Vanguard believes that the 10-year yield on US bonds has broken through the 4.75% mark, which may trigger a large-scale sell-off. Judging from the latest trend in US debt, it is already at this warning line.

Editor/Somer