At the last Fed meeting in 2022, the Fed released its eagle.
At 3: 00 a.m. Beijing time on Thursday, the Federal Reserve raised interest rates by 50 basis points as scheduled, slowing down from four previous violent rate hikes of 75 basis points.But the "bitmap" shows that terminal interest rates will rise to 5.1% next year, slightly exceeding market expectations, and predicts that interest rates will remain high and will not be cut until 2024.This is also the direct reason for promoting the diving in the US stock market!
Seeing this, many investors may begin to wonder: what is a bitmap? What do you think of the bitmap? What secret is hidden in this lattice map? The following will be interpreted for you one by one.
What is a bitmap?
In a nutshell, the Fed lattice map isPredict interest rate increases or cuts in the futureThe map is a kind ofForward-lookingIt's a message.
The Federal Reserve releases a bitmap in the last month of each quarter (that is, March, June, September and December).The bitmap shows Fed members' forecasts for interest rates.
The reason why the Federal Reserve released the lattice map is mainly toStrengthen communication with the marketIn case the market doesn't understand the Fed's message very well.
What do you think of the bitmap?
Lattice diagramThe horizontal axis is the timeline.Fed members usually predict the range of interest rates over the next few years and in the long run.
The vertical axis is the possible range of future interest rates.
Each solid dot represents a Fed member who makes predictions.Then its position represents the forecast made by a coalition official for future interest rates.
It is worth noting that each column of the bitmap can have up to 19 dots, that is, 19 Fed members.
There are seven Fed officials, including a Fed chairman, a Fed vice chairman, and up to five Fed governors. In addition, there are the chairman of the New York Fed and 11 local Fed chairmen, such as the chairman of the Chicago Fed and the chairman of the Atlanta Fed.
It should be noted that since the Federal Reserve Board is not always full, we often see less than 19 points in the bitmap.
Most crucially, when the Fed releases a bitmap, it publishes the median interest rate, which represents the Fed's future forward-looking interest rate.
Under the simple popular science, the median is not the average.
The median is to arrange a given group of numbers from small to large or from large to small, with odd numbers taking the middle number and even numbers taking the average of the middle two numbers.
We should pay special attention to the median of these points, followed by the concentration of these points.
What secret is hidden in this lattice map?
The lattice map of the expected future interest rates of Fed officials released after the meeting shows thatFed policy makers expect annual interest rates to be higher than they expected in September, suggesting that next year's tightening will be greater than the Fed had expected.
As can be seen in the chart below, in the September bitmap, all Fed officials expected the peak interest rate for this round of interest rate hikes to be less than 5%.But in December, all but two members are expected to set the final interest rate above 5%.
Among them, 10 are expected to have interest rates between 5.0% and 5.25% next year, and 5 are expected to have interest rates ranging from 5.25% to 5.5%. Two are expected to have interest rates between 5.50% and 5.75%.Last time, no official expected interest rates to exceed 5.0% next year.
In terms of median expectations, FOMC's expectations for final interest rates rose to 5.1 per cent from 4.6 per cent in September, meaning interest rates could rise by another 75 basis points later. It is worth noting thatSeven Fed officials predict that interest rates will remain above 4.5% in 2024At present, the Fed interest rate is only 4.25% and 4.5%.This means that interest rates will be higher than the current level.
Source: United States Federal Reserve system
Ian Lyngen, Managing Director and head of interest rate Strategy, BMO Capital Markets:
Using a very similar fair value calculation of the 2-year rate of returnIt is expected to raise interest rates by 50 basis points in February 2023, 25 basis points in March and 25 basis points in March 2024, followed by an additional 75 basis points in the second half of 24 (consistent with the bitmap).We believe that a 2-year yield of 4.69% is' fair'.
Of course, this is not accurate, but you can see how far the rebound in the front-end market has gone before the meeting.
However, investors must note that the bitmap is only a point of view and does not represent the real policy direction. On the one hand, not all forecasters have the final say on interest rates; on the other hand, historically, the bitmap is not consistent with real policy.
The bitmap reflects more of the committee members' attitude towards raising interest rates than the actual number of interest rate increases during the year. We can get a glimpse of the change in Fed officials' position on interest rates through two consecutive bitmap.
The discussion on the topic of the Fed's monetary policy may not end soon.After all, Powell was asked overnight whether the Fed's 2% inflation target would change. He stumbled and answered, "this may be a long-term project."The statement is seen as opening the door to a higher inflation target.
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