Why I Believe the December FOMC Contains a Hidden Dovish Tone in a Hawkish Outlook？
❖Dove❖
➤ The Intimidating Eagle
From June to September 2023, the dot plot's high density consistently anticipated terminal interest rates at 5.25~5.5%. This led the market to never fully shake off the tragic expectation of another rate hike starting in August.
In the September 2023 dot plot, officials predicted a 63% probability of another rate hike in 2023, with 12 out of 19 officials believing one more hike was necessary. However, after September 2023, the Federal Reserve never raised rates again...
The Fed, maintaining an intimidatingly hawkish demeanor throughout the fourth quarter of 2023...
The Fed's adoption of this intimidating stance, Little Bee speculates, was part of its strategic direction for 2023, which was to be hawkish. This strategic planning might have been determined as early as 2020, setting the cycle for tightening and hawkish policies.
On the other hand, facing high inflation rates, the Fed influenced market sentiment and guided market behavior by releasing hawkish signals. In response to the hawkish tone, businesses tended to lower prices, workers to reduce wage demands, consumers to cut back on spending, and oil prices to fall, thus better controlling the inflation rate.
➤ Turning Dove
Finally, in December 2023, the direction shifted from hiking rates to cutting them, giving the market a sense of a dovish atmosphere.
Similar to the above analysis, from the first rate cut in 2022 to 2023, it took over a year. During this time, the main strategic goal of the Fed was to suppress inflation. Entering 2023, while continuing to curb inflation, the Fed also had to consider preventing economic recession as one of its strategic goals, thus its attitude and tone shifted from hawkish to dovish.
First, the interest rate forecast for 2024, as compared to the September dot plot, has been lowered. This implies a more relaxed interest rate for 2024 than originally anticipated.
Second, in Fed Chairman Powell's opening remarks at the press conference, he acknowledged that in 2023, “unemployment remained low” and “inflation eased over the past year,” setting a longer-term target of a 2% inflation rate (by 2026).
Third, although Powell did not rule out further rate hikes, he believed that interest rates might have reached or are near their peak. Although he stated that "declaring victory over inflation is premature," the Fed meeting has already begun discussing the timing of rate cuts.
❖Dove with a Hidden Eagle❖
Although the Fed's attitude and dot plot showed a reversal compared to September 2023, there might still be a hawk hidden within the dove.
➤ Compared to the forecast in June 2023
Comparing the dot plots from June, September, and December 2023 regarding interest rate forecasts for 2024, while December's forecast is indeed lower than September's, it's still higher than June's. So, the so-called dovishness might be considered hawkish when compared to the predictions in June 2023.
➤Compared to Market Expectations
The interest rate futures on the CME suggest that the market expects a rate cut in March 2024.
However, assuming each rate cut is 25 basis points and there's no pause between cuts, the current dot plot suggests that the most likely month for a rate cut would be September, with the earliest prediction being May 2024.
Among the 19 Fed officials involved in the forecast, only 1 predicted the year-end interest rate to be 3.75-4.00% (with rate cuts beginning in May). However, no one predicted the 2024 year-end rate to be 4.00-4.05% (with rate cuts starting in June). Therefore, the probability of a rate cut in May is very low. There is no rate-setting meeting in July. Going forward, the next prediction is for rate cuts beginning in August, and the probability of rate cuts commencing in August is lower than that of October.
Fed dot plots are not always perfectly accurate but usually not far off. Therefore, the likelihood of a rate cut in March is extremely low. This is a stark contrast to market expectations. After the Fed officials' predictions in December, a sudden rate cut in March, completely unrelated to the predictions, seems highly unlikely.
Of course, there's a possibility of a rate cut in March followed by a pause. However, pausing at the initial stages of rate policy adjustments also seems improbable.
Thus, the market's expectation of a rate cut might be overly optimistic.
➤ Balance Sheet Reduction Continues
In Fed Chairman Powell's opening remarks at the press conference, he said, "We decided to keep the policy rate unchanged," followed by "and continue to reduce our holdings of securities." During its asset purchase program, the Fed injected dollars into the market by buying securities. So, even though rate hikes have stopped, the Fed continues to reduce its balance sheet by selling securities and withdrawing dollars.
➤ Rate Comparison
In Powell's opening remarks, he stated, "By the end of 2024, the appropriate level of the federal funds rate would be 4.6%, by the end of 2025, it would be 3.6%, and by the end of 2026, it would be 2.9%."
What does this rate imply?
In February 2014, at the end of a bull market, the rate was 0.07%, In January 2015, during a bear market, it was 0.12%, In January 2018, at the end of a bull market, it was 1.42%, Before the rate cut in the first half of 2019, it was 2.4%, In January 2021, at the end of a bull market, it was 0.08%.
So, for 2024, a year close to or possibly in recession, the rate is 4.6%, 3.6% for 2025, and 2.9% for 2026. If the rate cut is indeed this significant, what do you think will be the liquidity situation in the speculative markets?
Of course, these are still far-off expectations, and the actual situation may vary considerably. 2025-2026 is still a long way off. But the emotional impact of the shift from hawkish to dovish in the short term might limit the positive effects for 2024.
为什么说12月FOMC会议美联储鸽中藏鹰？
❖鸽❖
➤恐吓的鹰
2023年6月-9月，点阵图的高密度预期始终是终端利率在5.25-5.5%。这导致市场从8月开始，市场始终未能彻底摆脱再加息一次的悲剧预期。
2023年9月点阵图中，官员们预测2023再加息一次的概率为63%，19名官员中，12人认为需要再加息一次。结果2023年9月以后，美联储再也没有加息……
美联储就这样，整个2023年第4季度端着一副鹰气逼人的样子……
美联储之所以摆出这种吓人的姿态，小蜜蜂猜测，2023年的战略方向就是鹰，这种战略规划可能早在2020年放水时就确定了未来的收水和放鹰的周期。
另一方面，面对较高的通胀率，美联储通过释放鹰派讯号，影响市场情绪并引导市场主体行为。面对鹰派基调，企业趋于降价销售，劳动者趋于降低工资要求，消费者趋于缩减消费，原油价格趋于下降，从而让通胀率更好的得到控制。
➤转鸽
终于在2023年12月，风向从加息转向了降息，让市场感受到了鸽的气氛。
与前面分析道理类似，从2022年第一次降息到2023年，经历了一年多的时间。这段时间，美联储的主要战略目标是抑郁通胀。进入2023年以后，美联储在抑制通胀的同时，必需要把抑制经济衰退作为战略目标之一，因此态度和口吻都由鹰转鸽。
第一，相对于9月的点阵图，2024的利率预测区间下降。这意味着2024的利率比原本预期的更为宽松。
第二，美联储主席鲍威尔新闻发布会开场白中，肯定了2023年“失业率保持在低位”、“通胀在过去一年有所缓解”，并将通胀率2%作为较长期的目标(2026年)。
第三，虽然鲍威尔说不排除进一步加息，但但相信利率可能已经达到或接近峰值。虽然他说“宣告抗通胀胜利为时尚早”，但是联储会议已经开始讨论降息时间点。
❖鸽中藏鹰❖
虽然美联储的态度和点阵图相对于2023年9月出现反转，但是鸽中可能仍然藏鹰。
➤相比2023年6月的预测
对比2023年6、9、12月的点阵图，对2024年的利率预测，12月的预测确实低于9月预测，但仍然高于6月预测。所以所谓的鸽只不过是相对于2023年9月的预测，相对于2023年6月的预测可能是偏鹰。
➤相比市场预期
芝商所的利率期货显示，市场的预测是2024年3月降息。
然而，按照每次降息25个基点，连续降息不暂停，本次点阵图显示，最大概率会在9月降息，最早的降息预测也是2024年5月。
在19名参与预测的美联储官员中，只有1人预测年底利率为3.75-4.00%(5月开始降息)。而没有人预测2024年底利率为4.00-4.05(6月开始降息)。所以5月降息的概率很低。7月没有议息会议，按下来就是8月开始降息的预测，8月开始降息的预测概率是低于10月的。
美联储点阵图的预测与实际情况会有出入，但不会相差太大。所以3月降息的概率极低。这与市场预期相差非常悬殊。美联储19位官员12月预测以后，3月突然与预测毫不沾边的降息，这种可能性恐怕不大。
当然，也有可能3月降息，然后中间暂停降息。但是在利率政策初始阶段暂停，这种概率恐怕也不大。
所以，市场对降息的预期有可能过于乐观。
➤缩表仍然在继续
美联储主席鲍威尔新闻发布会开场白中，"我们决定保持政策利率不变”，紧跟着说“并继续减少证券持有量"。 美联储在大放水是，通过购买证券向市场投放美元。所以，虽然停止加息，但美联储仍然在继续缩表，通过减持证券、收回美元。
➤利率比较
美联储主席鲍威尔新闻发布会开场白中，原文"到2024年底，适当的联邦基金利率水平将是4.6%，到2025年底将是3.6%，到2026年底将是2.9%"。
这个利率是什么概念？
2014年2月，牛尾，利率0.07%，
2015年1月，熊中，利率0.12%，
2018年1月，牛尾，利率1.42%，
2019年上半年降息之前，利率2.4%，
2021年1月，牛尾，利率0.08%。
所以，经济接近或者可能已经衰退的2024年，利率4.6%，2025年利率3.6%，2026年利率2.9%。如果利率真的降幅如此，你觉得投机市场的资金宽松情况会是如何？
当然，这个预期还很远，实际情况出入可能会比较大。2025-2026还远。但短期由鹰转鸽带来的情绪影响，对于2024能带来的利好可能相对有限。