EB SECURITIES: The Federal Reserve is strong in the short term and may be more proactive in the second half of the year
EB SECURITIES released a research report indicating that the Federal Reserve may have 2-3 more rate cut opportunities in 2023, mainly influenced by deteriorating consumption and employment data, corporate debt risks, and pressure from U.S. Treasury supply. The Federal Reserve decided to keep interest rates unchanged at the May meeting, emphasizing the uncertainty facing the economy. Powell stated that economic data needs to be observed and that rate cuts may not happen prematurely. Risk warnings include inflation and economic downturns exceeding expectations, as well as escalating international trade conflicts
According to the Zhitong Finance APP, Everbright Securities released a research report stating that the Federal Reserve has paused interest rate cuts for the third time, emphasizing that the economy faces greater uncertainty, which is basically in line with market expectations. Powell's statements after the March and May FOMC meetings implied that he is more concerned about the impact of the one-time surge in inflation on economic and employment data. Looking at the year, it is expected that the Federal Reserve still has room for 2-3 rate cuts, with important triggering factors including a rapid deterioration in consumption and employment data, tail risks in U.S. corporate bonds, and the Treasury Department starting to issue U.S. Treasury bonds in bulk after the debt ceiling is raised, which may temporarily amplify the supply pressure of U.S. Treasury bonds, all of which may require action from the Federal Reserve to coordinate.
On May 7th, Eastern Time, the Federal Reserve kept its stance unchanged as expected, maintaining the federal funds rate target range at 4.25% to 4.50%. This marks the third consecutive monetary policy meeting where the Federal Reserve decided to pause interest rate cuts. The next meeting will be held on June 18th.
Everbright Securities' views are as follows:
The Federal Reserve has paused interest rate cuts for the third time, emphasizing that the economy faces greater uncertainty, which is basically in line with market expectations. Powell repeatedly emphasized at the press conference that it is necessary to wait and observe, stating that there will be no preemptive rate cuts in response to a recession, and even issued hawkish remarks suggesting that there may be no action for a year.
Everbright understands that current tariffs only impact soft indicators and have not yet harmed hard data. The Federal Reserve must maintain a hawkish tone in its monetary policy to defend its independence and stabilize inflation expectations. However, Powell's repeated statements after the March and May FOMC meetings that tariffs have a "temporary" impact on inflation also imply that he is more concerned about the impact of the one-time surge in inflation on economic and employment data amid "stagnation" and "inflation."
Looking at the year, it is expected that the Federal Reserve still has room for 2-3 rate cuts, with important triggering factors including a rapid deterioration in consumption and employment data, tail risks in U.S. corporate bonds, and the Treasury Department starting to issue U.S. Treasury bonds in bulk after the debt ceiling is raised, which may temporarily amplify the supply pressure of U.S. Treasury bonds, all of which may require action from the Federal Reserve to coordinate.
Risk Warning: U.S. inflation rises faster than expected, economic downturns occur faster than expected, and international trade conflicts intensify
