According to Zhitong Finance APP, Tianfeng released a Research Report stating that the SEP announced at this week's Federal Reserve FOMC meeting does not provide more reference value, as Federal Reserve officials are also moving forward in the uncertainty of Trump 2.0. After Trump took office, many perceptions need to be reconstructed, and many expectations need to change. Before that, the market's game was quite sufficient, and US stocks and US bonds have entered a 'calm period' before Trump's inauguration. The main risk in the future is that the relatively stable debt issue of the USA residential sector may undergo non-linear changes, rapidly deteriorating and resulting in interest rate cuts by the Federal Reserve exceeding expectations.

Tianfeng Securities' main points are as follows:

Entering December, US stocks continue to reach new highs based on self-reinforcing logic.

After fully gaming Trump's policy path (overly worrying and adjusting to large fiscal policies, large deficits, and high inflation), sensitivity to core economic data has decreased. Even if US bonds have shown certain wide fluctuations, they are close to returning to the high point level after Trump's election. However, structurally, this has almost entirely come from the rebound of term premiums, and behind it is not the rise of Federal Reserve policy and economic uncertainty, but more from the calendar effect of year-end asset rebalancing. Regarding the game of Trump's (policy), either it has already been fully played, or it waits to observe what he expresses as the 'ruler' in key areas like tariffs and immigration after assuming office on January 20, and these games have little correlation with the strength of economic data. In general, US stocks and US bonds have entered a 'calm period' before Trump's inauguration.

From the perspective of interest rate cut expectations, with the publication of the November US non-farm and CPI data, the market has almost fully priced in a 25bp interest rate cut operation by the Federal Reserve in December. The market chooses to bet on the 'certainty' of the December rate cut, believing that the Federal Reserve will lean towards a larger cut again as it did in September (in September it was 25bp vs 50bp, in December it is 0 vs 25bp) to respond to the 'uncertainty' of monetary policy after Trump's rise to power.

Logically speaking, this seems reasonable. Because the game surrounding the Federal Reserve's monetary policy mainly lies in how to understand the 'gradual rate cut' communicated by numerous officials, and how to rationalize the guidance of the September SEP in conjunction with key economic data. However, in any case, it cannot deviate from the fact that 'at least one rate cut will occur in the next two meetings (December and January 2025)'.

With Powell stating that he will not 'speculate, hypothesize, or assume' about Trump's 2.0 policies, the emphasis on certainty is not surprising. This also continues his shift towards a dovish stance since August. However, given the relatively limited space for monetary policy, how to navigate the uncertainty of Trump poses a challenge for the Federal Reserve.

Returning to the variations in the strength of core data in the USA: From the latest November CPI data released, the 'temporary neglect' of American economic data does not mean that the current dynamics of disinflation in the USA are satisfactory. On the contrary, the continued slowdown and even stagnation of the current disinflation process should raise alarm.

Core CPI has maintained a monthly rate of 0.3% for four consecutive months, and overall CPI has returned to its peak since April. Although core service inflation has eased due to housing, core commodity inflation has begun to fluctuate upwards, driven by a 5.7% year-on-year increase in comparable Black Friday sales in the USA, an overall transaction volume growth of about 6.7%, and the continued recovery of retail traffic in Restaurants. The gradually normalizing service inflation and the resurgent commodity inflation reflect the resilience of USA Consumer spending.

The stickiness of the month-on-month growth rate in every inflation report over the past few months (0.3%) can be attributed to factors such as 'temporariness' and 'heterogeneity': housing in August, healthcare in September, vehicles in October and November, along with seasonal adjustment factor differences. However, this cannot continuously serve as a rationale for the Federal Reserve to lower rates in the name of 'disinflation.'

Particularly after the relative normalization of housing inflation in November, USA inflation has become more 'realistic,' meaning that in the future, the market, the Federal Reserve, and Trump will all need to more 'honestly' confront the fact that USA inflation is difficult to fall back. This can also be referred to as an increasingly evident 'stagflation' environment. Of course, inflation, as a result of economic running, will inevitably be influenced by many uncertainties post-Trump's assumption of office: tariffs, spending cuts, and immigration policies, but these will only become clearer after Trump takes office.

In other words, the SEP released at this week's Federal Reserve FOMC meeting does not possess more reference value, as Federal Reserve officials themselves are navigating the unknowns of Trump's 2.0. Many perceptions need to be reconstructed, and many expectations need to be altered after Trump takes office. Prior to this, the market's game in this regard has been relatively sufficient, entering a 'calm period' before Trump's assumption of office.

The main risk ahead is that the currently relatively robust debt issue of USA households may show non-linear changes, rapidly deteriorating and causing the Federal Reserve to lower rates more than expected. At the same time, the Federal Reserve's dovish tendencies may lead to excessive rate cuts, resulting in a quicker and larger rebound in USA inflation. The uncertainties regarding Trump's trade policies after he takes office will also unexpectedly impact the USA economy itself; moreover, other policies that Trump emphasizes (immigration, tax cuts, etc.) may also face faster implementation.

Risk warning: USA interest rate cuts exceed expectations, the pace of implementation of Trump's policies exceeds expectations, Trump's trade policies become more aggressive, and non-linear changes occur in USA private sector debt.