Economic data since November shows that 266,000 new non-agricultural jobs have been created in the United States, the highest level since January this year, and the unemployment rate has dropped to 3.5% of its historical position
The average annual wage growth rate is also better than expected. The Fed’s worrying inflation slump has also improved recently. In November, the CPI exceeded expectations by 2.1% year-on-year growth, setting a new high in a year. The three interest rate cuts during the year have stabilized the US economic indicators and made the latest Fed meeting to adopt a wait-and-see strategy.
It’s not difficult to find dovish traces from the Fed’s post-conference statement, because the statement removed the lingering uncertainty about the prospects for US economic expansion, a strong labor market, and inflation, but mentioned that Keeping an eye on inflationary pressures caused by the rise in US wages, Powell also said that it is possible to raise interest rates if the inflation rate rises significantly.
Fed doves look up
Although the Fed expects to keep interest rates unchanged in 2020, according to the CME Fed’s observation forecast model, it is expected that by December 2020, the probability that the Fed will maintain interest rates at 1.5% -1.75% is 49.1%; it is reduced to 1.25% The probability of -1.5% is 36.8%; the probability of falling to 1% -1.25% is 11.8%, and the probability of falling to 0.75% -1% is 2.1%. Based on the following factors, it can be speculated that the Fed’s interest rate cut cycle is only suspended but not terminated. First of all, in 2020, the Fed’s internal ticketing committee structure will “go pigeon”, the voting rights will be rotated, the two hawkish figures will withdraw, and the new ticket committee will be “dove pigeon” compared with 2019. Secondly, the dovish information can also be learned from the bitmap and the Fed statement after the meeting. Third, the domestic political environment in the United States tends to be tense, and the game between Democrats and Republicans may restrict fiscal policy. 2020 is the year of the US election, and Trump’s impeachment case will be held concurrently with the election. At present, the political competition between the Republican Party and the Democratic Party has entered a fierce stage. With the two parties controlling the House and the Senate separately, it is expected that Trump’s impeachment case will eventually reach the Senate’s two-thirds limit. At the same time, Trump’s fiscal stimulus is more difficult to pass during the election. It is expected that US fiscal policy will encounter greater resistance during the general election. Finally, the United States is in an uncertain international environment, Sino-US trade relations, political uncertainty and downward pressure on the global economy have directly affected the global trade industry chain and capital expenditures of enterprises. On the other hand, it will also conduct and amplify risks through the financial market, which will challenge the central bank’s policy objectives of maintaining financial markets.
There is room for interest rate cuts in emerging markets
Although the Fed kept the benchmark interest rate unchanged this time, it did not stop the currencies such as Euro, British Pound, Renminbi, Hong Kong Dollar and other currencies from strengthening in the past month. It is precisely because of the weakening of the US dollar that there is room for interest rate cuts in emerging markets. After the US interest rate meeting, the Brazilian central bank cut interest rates by 50 basis points to 4.5% for the fourth time in a row. In addition, the Turkish central bank also cut interest rates by 200 basis points more than expected, reducing interest rates by 12%, and the Turkish president also said that in 2020 the benchmark interest rate will be reduced to single digits. Brazil and Turkey have already begun the wave of interest rate cuts in emerging markets. If the dollar continues to weaken, more emerging market countries are expected to adopt more loose monetary policies to benefit local stock markets and real estate.