Main contents of FOMC meeting in January and September

Policy decision: the Fed raises interest rates 75bp, raising the target range of the federal funds rate to 3-3.25%By the same amount, the interest rate on excess reserves was raised to 3.15%, and the overnight reverse repo rate was raised to 3.05%. The shrinking table continues as planned.

The meeting statement: basically continue the contents of July, emphasizing the determination to control inflation.The main content of the statement of the meeting was basically consistent with that of July, continuing to emphasize the committee's firm commitment to bringing inflation down to 2 per cent, as well as a unanimous resolution to raise interest rates by 75bp.

Economic Forecast and Dot Matrix Chart: the forecast of economic growth has been greatly reduced, and the lattice chart has moved forward substantially.In terms of economic growth, the Federal Reserve slashed its real GDP growth forecast for 2022-23 to 0.2% and 1.2% respectively (1.7% for both June forecasts), much lower than the expected long-term level of 1.8%. In terms of unemployment rate, the Fed raised its unemployment forecast for 2022-24 to 3.8%, 4.4% and 4.4% (the June forecast was 3.7%, 3.9% and 4.1%, respectively), and the biggest increase was for 2023, which was 4% higher than the expected long-term level. In terms of inflation, the Fed slightly raised its inflation expectations for this year and next, with core PCE inflation expectations of 4.5 per cent and 3.1 per cent in 2022-23 and 4.3 per cent and 2.7 per cent in June. The bitmap has moved forward substantially, and interest rates are expected to rise to 4.25-4.5% in 2022, and interest rates will not be cut until the end of 2023. The September bitmap shows that the interest rate center is expected to be 4.4% in 2022, implying that the remaining two meetings this year will raise interest rates by 125bp, which is expected to be 3.4% in June. This time, members' views are more unanimous. It has basically become a consensus to raise interest rates to more than 4% at the end of this year, and only one member does not support raising interest rates to more than 4% at the end of the year. Among the members who supported raising the interest rate to more than 4%, 9 thought that the interest rate should be raised to 4.25-4.5%, 8 thought that the interest rate should be raised to 4-4.25%, and one thought that the interest rate should be raised to 4.5-4.75%.

Press conference: confidence in a soft landing weakens, but determination to control inflation is firm.In this press conference, reporters focused on the end point of raising interest rates and the risk of recession. With regard to the end point of raising interest rates, Powell continued to strengthen the Fed's determination to control inflation, saying that to stop raising interest rates needed to see clear evidence that inflation fell back to 2 per cent. On how to assess the risk of a recession, Powell said that no one knows whether it will lead to a recession, but the possibility of a soft landing is decreasing further, indicating a decline in confidence in a soft landing.

Immediate impact of the market: the bitmap is slightly higher than expected, and the overall market response is slightly hawk.The bitmap eagle pie slightly exceeded expectations, so the overall asset price response is slightly partial to the eagle. Within half an hour of the release of economic forecasts, the S & P 500 / NASDAQ / Dow Jones Industrial average fell 0.6%, 0.6%, 0.5%, to 3826, 11332, 30460; COMEX gold fell as low as $1662.7 / ounce, down 0.4%; the dollar index rose as high as 111.49, up 0.04%, and 10-year Treasuries fell 2.9bp to 3.57%.

Second, how high is the expected recession in the United States?

(a) how do various departments anticipate a recession in the United States?

Observe the main economic expectation indicators of the four major sectors (professional institutions, financial market investors, enterprises, households) to examine the expectations of various sectors for the US recession, and sort out a total of 20 indicators, the main indicators are sorted out as follows:

Generally speaking: (1) at present, there are differences in economic expectations among different sectors.Of the four sectors, households are the most pessimistic about the economic outlook.At present, the University of Michigan consumer confidence index and the IBD/TIPP economic optimism index are both in the contraction range, at the historical quantiles of-82 per cent and-67 per cent, respectively. Professional institutions have relatively modest expectations for the economy. Of the nine indicators that reflect the economic expectations of professional institutions, two are still in the range of expansion, while the rest all point to economic contraction, but the range is relatively small, on average, the whole is in the historical 1% quantile, which is still higher than the historical average level of expansion. Financial market investors and corporate sectors have similar economic expectations, both in the range of contraction, reflecting that the five indicators expected by the former are averagely at-13% quantile, while the latter's nine indicators are averaged at-14% quantile.

(2) there are also differences in expectations reflected by different indicators in the same sector, and not all indicators point to expected economic contraction.In professional forecasts, the New York Fed WEI index and Salm Rule index are still in the expansion range. In financial markets, the average OAS of Bloomberg Barclays US high-yield corporate bonds is still below the historical average and does not point to economic contraction. Among the indicators of corporate expectations, the Kansas Fed manufacturing PMI and CEO economic outlook index also reflect that the economy is still expanding. Only two indicators in the household sector point to a deep contraction in the expected economy.

2. How do financial assets price interest rate hikes and recessions?

How do asset prices price current Fed interest rate hikes and recession expectations? As can be seen from the calculation: based on the price estimate before the FOMC meeting on 21 SeptemberUs debt is expected to raise interest rates relatively well.(pre-FOMC pricing in September has implied that interest rates will be raised by about 175bp this year, but the higher-than-expected FOMC in September also led to a slight decline in US debt.)10Y-2Y Treasury yield spreads have also been priced for the US recessionBefore FOMC in SeptemberUs stocks are relatively weakly priced.(pre-meeting pricing implies raising interest rates again this year (50bp), so US stocks also fell the most after the meeting.) at the same time, the forecast for the economic downturn is also much smaller than the Fed's economic expectations.Therefore, if the Fed does not reduce its hawkish posture in the future, the risk of US stock adjustment may be greater.

1. Us debt: more fully priced for interest rate hikes and recessions

2. Us stocks: underpricing for interest rate hikes and recessions

Risk hint: us inflation exceeds expectations