How Does The Fed Raise Interest Rates Affect International And Domestic Markets?

As the largest economy in the world, monetary policy has a huge external spillover effect.

The Federal Reserve will decide on the operation sequence of scale reduction and interest rate increase according to the performance of the US economy and financial market in the three quarter: if the performance of the three quarter is satisfactory to the Fed, then the interest rate will be raised in September, and then the scale will be reduced. If the three quarter economy will increase significantly, it will choose to start the first step to reduce the interest rate until December or next year.

The combination of interest rate increase and gradual reduction will make the future choice of monetary policy in the US Federal Reserve bigger and more flexible.

First, the rate hike is the fourth increase in interest rates since the end of 2015.

The latest dot matrix shows that the United States is still in the 2 to 3 years of moderate interest rate increase, and other countries, including China, need to respond to a longer period of time in addition to the release of response signals for each increase in interest rate.

Two, with the increase in interest rates, the Federal Reserve has begun to start the reduction plan.

Once the path is confirmed, the US long-term policy framework will further impact the international market and intensify liquidity tensions.

However, Yang Yue stressed that in the face of the impact of the US interest rate increase policy, China has the ability to respond relatively independently to its own development goals, without worrying too much or simply following it passively.

He gave two reasons: first, the economic environment of the two countries is changing dynamically.

On the one hand, the sustained economic fluctuation in the first quarter of the United States and whether the economy has a long-term strong recovery remains to be seen.

On the other hand, the global economic environment is improving, although the domestic economy is still at the bottom and bottom stage, it shows signs of stabilization, and the quality of economic development is constantly optimized.

Two, the current domestic monetary policy objectives are clear, the interest rate level has been lifted in advance, the impact of US interest rate hike has been digested ahead of schedule, and the fluctuation of financial market is more affected by domestic internal factors.

The latest information delivered at the June Conference on interest rates: there is another interest rate increase in the year. The plan is announced to increase growth expectations and lower inflation expectations.

(1)

The 25 base point, the federal funds rate rose from 0.75%~1% to 1%~1.25%.

It is expected that interest rates will be raised again in the year.

(2) the Federal Reserve is expected to start shrinking this year, in a specific way to gradually reduce the reinvestment scale of the maturity Securities: initially, it reduced 6 billion US dollars in treasury bonds and 4 billion US dollars in MBS each month, and the scale increased once a quarter until the monthly reduction of US $30 billion treasury bonds and US $20 billion MBS.

By then, the plan will be reduced according to the monthly reduction of US $30 billion treasury bonds and US $20 billion MBS, until the Federal Reserve believes that the scale of the assets meets the desired level.

(3) the Federal Reserve raised its GDP growth forecast from 2.1% to 2.2% in 2017, reducing PCE inflation expectations from 1.9% to 1.7%.

Marginal weakness: active replenishment of stocks is coming to an end, inflation is not as good as expected, and Trump's new deal is full of resistance and vigilance against asset bubbles.

(1) the US economy has entered a short period of downlink, and active replenishment has come to an end.

(2) the US inflation and core inflation index has started to fall after reaching a high level in the first quarter of this year.

If core inflation continues to fall below 1.5% in the future, it will increase the Fed's concerns about continuing to raise interest rates.

(3) the recent unemployment rate has reached a new low of sixteen years, and the overall employment has improved.

(4) share prices are at a record high and asset price bubbles have prompted the Federal Reserve to be vigilant.

(5) Trump's new deal is facing many obstacles.

The negotiation of the tax reform bill is very long. It will pass or will be postponed until 2018.

The source of funding for infrastructure is still unclear, lacking state government cooperation.

Impeachment is not enough, but

And opposition voices may be a long-term constraint on Trump's new deal.

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