Leave all the “eagles” in 2022!

December 21, after basically confirming the end of the Fed’s rate hike, the Bank of Japan also changed its yield curve control policy, the last “doves loud and clear” of the Western central banks, finally also become “hawk”.

Before that, on December 15, the ECB and the Bank of England, have each announced a rate hike at the rate meeting

The ECB will be the Eurozone‚Äôs three key interest rates – the main refinancing rate, marginal borrowing rate, deposit facility rate, respectively, to 2.50%, 2.75% and 2.00%, and also plans to start tapering in March 2023, the forward guidance is quite “hawkish “, and until September 2022, the ECB has been adhering to the -0.5% negative interest rate on deposits it!

The Bank of England announced that the benchmark interest rate on the pound was raised by 50 basis points to 3.5%, which is the ninth consecutive interest rate increase by the Bank of England since December 2021, having raised the benchmark rate from 0.1% to the current 3.5%.

Needless to say, before that, at the Fed’s rate meeting on December 14, the Fed announced a 50 basis point hike, bringing the benchmark rate to a range of 4.25%-4.5%, while the Fed’s “interest rate dot plot” shows that by mid-2023, the Fed’s benchmark rate could be raised further to 5% above the level.

Thus, in the last half of 2022, from the Federal Reserve to the ECB, to the Bank of England and the Bank of Japan, the central mothers of the major Western economies, one appears to be “hawkish”.

This means that…

2023 will be the year of global tightening countries?

Wrong!

The year 2023 is unlikely to be the year of global tightening; instead it is likely to be the year of global easing.

There is no need to observe the seemingly “hawkish” statements of the Bank of Japan, the European Central Bank and the Bank of England, because they “don’t matter”. The real general direction of global monetary policy, just look at the United States on the line In today’s world, you always have to remember – the dollar is the only world currency, the direction of the dollar monetary policy, is the baton of any other economy’s monetary policy.

In fact, if you compare global central banks raising and lowering interest rates, 2022, is the real year of global monetary tightening, and, right at the end of 2022, the percentage of global central banks raising interest rates reached a 32-year high (see chart below).

Analyze the views conveyed by the world’s major central bank monetary policy; it is clear why I say that “tightening” is nearing the end.

The centerpiece, of course, is the Federal Reserve.

At the December meeting, the Fed began to slow down its rate hikes, as the market expected, and while the “dot plot” shows a potentially higher rate hike endpoint, according to the Fed’s Summary of Economic Projections (SEP, Subtract of Economics Projection), the Fed deliberately The economic growth rate forecast for 2022 has been revised downward, and the unemployment rate has been revised upward and the inflation rate has been revised upward, which means that, unlike the past year, the Fed’s monetary policy will have to focus on economic growth and rising unemployment in addition to inflation. ……

The original dot plot, almost all Fed members agreed to raise interest rates to a certain range, now the dot plot, most people, although thinking of raising rates to more than 5%, but there are 2 but think that an increase to 4.75% is enough, which shows that we have a divergence.

The original is the rising inflation, the Fed had to can raise interest rates, a mind to try to suppress inflation, now, U.S. housing prices have begun to fall sharply, to give additional consideration to recession and unemployment, you say is not that the rate hike near the end?

Then look at the state of the U.S. economy.

First of all, there is a “welcome” decline in the inflation rate, and for 2 months in a row, the chain of decline.

With the Fed’s year-long violent rate hikes, U.S. home mortgage rates rose to the highest level in 20 years, which greatly suppressed the rise in home prices, which have been falling since August, which will soon drive U.S. housing services (rent) inflation down next year, which also means that the largest single subset of inflation is expected to fall. On top of that, inflation in major subcomponents such as energy and used cars have all seen their first declines since August 2020, meaning that the U.S. has seen the light of day when it comes to controlling inflation.

I have written an article about the unemployment rate in Maine, which is basically the “canary” of the U.S. employment problem. The unemployment rate in Maine has risen for four consecutive months, which means that the rise of the overall unemployment rate in the U.S. will soon be manifested.

In terms of consumption, retail sales in the U.S. rose -0.6% in November from a year earlier, the largest decline in nearly a year, especially in furniture, building materials, cars and other big-ticket items fell back significantly, in the case of obvious inflation, but sales have fallen back significantly, which indicates that potential consumption is very poor.

From the production side, the just-released Market Manufacturing and Services Purchasing Managers’ Index (PMI) for the first half of December in the U.S., both showed an over-expected decline, reaching 46.2 and 44.4 respectively, which means that the U.S. economy is likely to slow down faster than the market imagined.

From energy to food, from house prices to cars, from inflation to unemployment, from consumption to production ……, all the signs of a slowdown in the U.S. economy, have been reminding the Fed –

Rate hike almost, don’t pretend, too much is not good!

The most interesting thing is that the Fed’s rate hike dot plot shows that the U.S. benchmark rate will be around 5.1% in mid-2023, while CME market-traded interest rate futures show that March 23, 2023 will be the Fed’s last rate hike, and the end point of the benchmark rate for the current round of U.S. dollar rate hikes should be below 5% (the following chart is a screenshot from Fed Watch Tools)……

Do you choose to trust the market game / or trust the Fed’s members to vote?

Other year-end rate hikes such as those by the ECB, BoE and BOJ, while all hawkish in expression, are actually a continuation of the March 2022 view and do not appear to be anything particularly new.

In particular, whether the ECB, the Bank of England or the Bank of Japan, treating their respective economies, almost all the same as the Fed, is very optimistic about the economy in 2022 and 2023, which likewise means that they have to take into account the risk of recession and unemployment while raising interest rates, which obviously all form a constraint on the central mothers’ rate hikes.

This also means that, in addition to China, the central banks of major Western economies, the most “hawkish” stage, have become a thing of the past, from 2023 onwards, under normal circumstances, the major central mothers, will be unlikely to introduce tightening measures beyond market expectations.

In terms of monetary policy, what does it mean to be a hawk and what does it mean to be a dove?

A tougher monetary tightening than before is called a “hawk”, while a less tough tightening than before, or a more relaxed than previously expected, is called a “dove”.

In this way, I personally even think, from the Federal Reserve to the ECB, from the Bank of England to the Bank of Japan, the central mothers of all countries, all the beads of the abacus to crackle, deliberately all the “hawkish” statement, are left in 2022.

Only then, in the coming 2023, when encountering recession, encountering rising unemployment, they will have more comfortable, more relaxed, more confident “easing space”.

If we further consider that the world’s second largest economy (China), the central mother, 2022 did not raise interest rates at all, but also cut interest rates, and in order to stimulate the economy in 2023, the probability of additional easing, so that the upcoming 2023 –

It is not likely to become a monetary tightening year, but rather a high probability of becoming a monetary easing year!

 

 

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