Federal Reserve: The Subtext of the End of the Rate Hike

Whether a rate hike will occur again in 2023 is no longer the "core contradiction" in the current market. The key is to break the pattern of "maintaining at a higher level for a longer time", which is crucial for transitioning from rate hikes to rate cuts. This depends on when core inflation falls below the threshold of 3%. Specifically, the following incremental information from this meeting is particularly noteworthy:

Firstly, while retaining the rate hike once again in 2023, the forecast for a rate cut in 2024 has been reduced from 100bp to 50bp (from four times to two times). This is the most significant "hawkish" signal from this meeting.

Secondly, the Fed is more confident in the resilience of the economy. The Federal Reserve has doubled the forecast for US economic growth in 2023 (from 1% to 2.1%).

Thirdly, it is expected that inflation will cool further. The forecast for core inflation in 2023 has been revised down from 3.9% to 3.7%.