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Short-term bond interest rates are lower or indicate that the Fed 2019 will suspend interest rate hikes

January 11, 2019 00:11
source: Chart home

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Fed Chairman Powell said at a press conference after the December 19 meeting, "Maybe we will improve our neutrality.interest rateEstimate or we will remain neutralinterest rateDon't change, then raise interest rates once or twice. "It sounds like interest rates will rise by 1%. But last week, Powell changed his attitude and made a speech on the doves."

a lot ofAnalystFocus on the Fed’s published interest rate dot matrix, but it’s important not to confuse the Fed’s comments with the actual situation. The bond market's forecast of the Fed's policies is much more accurate than the Fed itself.

Bad Fed forecast

Long-term equilibrium interest rates (or neutral federations over the years)fundInterest rates have been falling. In 2012, when the interest rate dot matrix was first published, bond investors never believed that the Fed would eventually raise short-term interest rates to 4.25%. The yield on 10-year US Treasury bonds is the average short-term interest rate for the next 10 years, which has not exceeded 4% since the 2008 financial crisis. The market is still skeptical about the Fed’s interest rate hike, so the Fed’s interest rate forecast has been gradually lowered and the market is consistent.

For stock investors everywhere, December was particularly bad because Powell’s comments provided another reason for short positions. Media reports suggest that the Fed will not take into account global economic slowdowns and market turmoil.

However, the two-year bond yield (the yield) barely rose on the press release date and then resumed the decline. The yield on the two-year bond is a good indicator of the market's recent policy expectations for the Fed. As a result, Powell succumbed to the inevitable outcome and adjusted his public stance to reflect what the bond market has already reflected. He said: "We are listening carefully to the information sent by the market, and we will take these downside risks into account when formulating future policies."

The key here is that stock investors seem to be more sensitive to the Fed than bond investors. Even when the stock market falls, the fixed income market is not moving.

Years ago, when Alan Greenspan made the market think the Fed knew more than anyone, because they were more likely to get data on current economic performance, but in fact, JPMorgan and Amazon may have better American consumers than the Fed. Real-time data.

The significance of bitmaps is that it helps us know what policy makers want to do. Although Powell argues that these predictions are only personal predictions and do not represent consensus, the median of the estimates of the 14 individuals clearly reflects the consensus of the group.

What we learned from the dot matrix in the past seven years is that the Fed’s consensus is as bad as forecasting. The bond market is better at predicting the Fed’s policies than the Fed. As the two-year government bond yield is 2.5%, the market expects that the Fed's policy this year will not change. The yield on the 10-year government bond is 2.7%, which is lower than the Federal Open Market Committee's equilibrium interest rate. The peak of the interest rate cycle is not far off.

But because the Fed may temporarily remain inactive, the stock risk premium continues to show that stocks are currently cheap. Although the energy infrastructure is strong this year, it is still below the level of a year ago.

Finally, analysts pointed out that investors should not confuse the Fed's comments with their policy actions, and stocks are still worth buying.

(Article source: Chart home)

                (Editor: DF392)

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