It’s a global central bank super this week, and many central banks are likely to raise interest rates. The US Federal Reserve is the first to raise interest rates by 0.5%, and the European and UK central banks are also likely to raise interest rates. In addition, the central banks of Switzerland, Norway, Mexico and other countries can also raise interest rates. Interest rate hikes are essentially doomed. The question is whether the rapid cycle of central bank rate hikes has reached a watershed and it is time to slow rate hikes.
The US Federal Reserve announced Wednesday it would raise its key interest rate by 0.5% from a range of 3.75% to 4% to a range of 4.25% to 4.5%. This is the first time the Federal Reserve has raised interest rates by just 0.5% since May of this year. After the announcement of the news of the interest rate hike, the US stock index fell by 700 points.
Federal Reserve Chairman Powell gave a news conference after the interest rate meeting, saying the latest economic data improved the Fed’s confidence in the drop in inflation and was expected to accelerate progress. His statement halted the decline in US stocks and the decline narrowed sharply.
Just before the Fed meeting, the US core inflation and CPI (consumer price index) announced in November and 0.1% MoM growth and 6% YoY growth last year were respectively lower than October’s 0.9% and 6.2%, year-on-year growth returned to 6%, reassuring the market somewhat. The core inflation figure is a key indicator for determining US interest rate policy. Falling core inflation means the Federal Reserve does not need to raise interest rates by 0.75% and can gradually reduce the increase.
There are several notable points when the Fed raises interest rates:
First, interest rate hikes last longer and peak higher. The Fed announced the latest interest rate dot plot of members’ intentions, delivering a negative message: the period of future interest rate hikes will be extended. Powell said in a press release that it might make sense to continue raising interest rates and that there is still a long way to go in the future. The pace of interest rate hikes is no longer an issue, the final level of interest rates is more important.
The Federal Reserve’s interest rate forecast for the end of next year has increased from 4.6% three months ago to 5.1%, meaning interest rates will rise 0.75% going forward. rate hikes. The Federal Reserve expects to cut interest rates by 1% each year in 2024 and 2025, which means interest rates will peak next year, but the peak could be delayed from the first half of the year to second half of the year.
Secondly, there is consensus on slowing rate hikes. It is the first time since May that the interest rate hike has been cut from 0.75% to 0.5%. Members of the Federal Reserve’s Open Market Committee unanimously voted in favor of raising interest rates by half a percentage point, which shows that there is no controversy within the Federal Reserve Board over the increase interest rates by only half a percentage point. It is a good sign that no member thinks the interest rate will be increased by 0.75%, which shows that the Fed agrees that the substantial interest rate increase has had the desired effect and that the increase in the rate can be slowed down.
Third, the US economy is at risk of a recession. The Federal Reserve expects US GDP to grow 0.5% this year, and GDP growth rates in 2003 and 2024 will be 0.5% and 1.6%, respectively, and forecasts at September were 100%, 1.2% and 1.7%, reflecting that the Fed is bearish on next year’s economic growth. Powell said the US economy has slowed sharply from last year and the economy will grow moderately this quarter. Nobody knows if the US economy will fall into a recession. The path to a “soft landing” is narrow but still possible.
The Federal Reserve expects the economy to grow just 0.5% next year, roughly between plus and minus. However, the Federal Reserve is still raising interest rates in the first half of the year. The US economy is not expected to improve in the first half of the year. The economy is expected to recover until interest rate hikes will not stop.
In short, interest rates in the United States will continue to rise, which is not good for the Hong Kong real estate market: if the US economy grows by only 0.5% next year, as forecast by the Federal Reserve Board, the demand for exports to the US market from Hong Kong and the mainland will be relatively large. Fortunately, mainland China has rapidly relaxed its anti-epidemic policies. It is estimated that China’s economy will have a chance to return to normal in the first quarter of next year. Global growth in the coming year will depend on China.
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Lu Yongxiong
