Fed remains on hold on interest rates, likely to cut interest rates this year

On January 31, local time, the Federal Reserve's first interest rate resolution of the new year was released, maintaining the benchmark interest rate at a range of 5.25%-5.50%. The hold on hold was in line with market expectations. This is the fourth consecutive time that the Federal Reserve has maintained this interest rate range unchanged. What also attracted much attention was that Federal Reserve Chairman Powell said at a subsequent press conference: "It is unlikely that confidence levels will be reached in March and March will be determined to be the time to take action (rate cuts)." Analysts interviewed all believed that this meeting caused the market to postpone the timing of interest rate cuts, but this meeting once again confirmed that the Federal Reserve is transitioning to an interest rate cutting cycle.

Powell said the federal funds rate is likely at the peak of this tightening cycle. If the economy develops broadly as expected, the Fed will begin to adjust policy.

Powell said that he hopes that inflation data will continue to decline in the second half of the year, and it may be appropriate to start cutting interest rates at some point this year. However, Powell also pointed out that "if necessary, we are prepared to maintain the current policy interest rate for a long time."

"Recent strong economic data and supply chain risks caused by Red Sea shipping disruptions are the main reasons for the Fed to be more cautious. If the economic fundamentals are still strong and supply risks have not been completely eliminated, then the risk of renewed inflationary pressures will It cannot be ignored." CICC predicts that the baseline scenario is still that the Federal Reserve may cut interest rates in the second quarter, but the extent of interest rate cuts throughout the year may not be as large as market forecasts.

Wen Bin, chief economist of Minsheng Bank, believes that based on the resolutions of the interest rate meeting and recent speeches by Fed officials, there seems to be a tendency within the Fed to converge on the issue of interest rate cuts. The core principle is to remain cautious.

“The rate of interest rate cuts throughout the year may be a compromise between current market expectations and the Fed’s dot plot expectations in December last year (3 times), with a total of 3-5 cuts, with a cumulative reduction of 0.75%-1.25%, so that the actual interest rate can still be maintained at At the current restrictive level. The earliest time for the first interest rate cut is May, which is currently expected by the market, or even later." Wen Bin believes.

Regarding the domestic impact, Zhou Maohua, a macro researcher at China Everbright Bank, believes that on the one hand, developed economies are gradually transitioning to an interest rate cut cycle, and the spillover impact of policies on my country has weakened. Judging from the trend, my country's economic fundamentals, policies, and valuations continue to be favorable for RMB assets.