Hawk shock! Powell sows seeds of chaos, Wall Street fully interprets

Today's Federal Reserve FOMC post-meeting statement is the same as the one in July, and what is truly shocking is theThe outlook for 2024 is even more hawkishIn fact, as foreign media pointed out, comparing the 2024 forecast with previous predictions shows a clear shift in hawkishness.

Here are some Wall Street analysts, strategists, and traders' comments on the Fed statement and Powell's press conference.

Allianz Chief Economic Adviser Mohamed El-Erian

"I am concerned that the economic and policy signals coming out of this Fed press conference may confuse and confuse many people. Some will see this as an inevitable outcome of this phase of the inflation and policy cycle; others will see it as further evidence that the Fed's communications are challenged."

Ira Jersey, Chief Interest Rate Strategist at Bloomberg Intelligence

"If the Fed keeps short-term rates well above 5 per cent for most, if not all, of 2024, the Treasury yield curve will be inverted for longer than many ordinary observers would accept. But in our view,Even if the Federal Reserve doesn't cut rates, the yield curve will continue to price in lower rates at some point in the future。”

Bloomberg Economics team

"While the dot plot shows that the Fed will raise rates again this year, we believe there could be a series of adverse shocks to economic growth between now and the end of the year that could derail the rate hike plan. Economic uncertainty along with the United Automobile Workers' (UAW) strike and the looming government shutdown could prompt the Fed to delay rate hikes until 2024 or even cancel them altogether. Nonetheless, we see a growing likelihood of another rate hike this year."

Zachary Hill, Head of Portfolio Strategy, Horizon Investments

"The Fed's forecast is that the economy will be more resilient in the face of higher interest rates, which means the neutral rate will increase. On the face of it, that's not a good reason to give up on stocks, so I think it also explains why our sell-off so far hasn't been obvious. Still, there's plenty of time today."

Jake Schurmeier, Project Manager, Harbor Capital Advisors

"It looks like the Fed is quite optimistic about a soft landing. That obviously led them to raise their forecasts for the neutral rate."

Omair Sharif, President, Inflation Insights LLC

"It's hard to explain the core PCE predicted value of 3.7% this year. That number, combined with lower unemployment and higher economic growth, explains why the Fed is going to raise rates twice next year, but it's very, very hard to justify. That means the monthly core PCE is much higher than most expected (especially given that most predicted a core PCE of 0.1% in August). It's also odd to think the unemployment rate will remain at 3.8% this year. Officials seem more confident that we'll only see a drop in demand through job openings, not a pick-up in layoffs. It's odd to be optimistic about the labor market, and equally odd to be pessimistic about core inflation this year."

Andrew Patterson, Senior Economist at Vanguard

"This means [higher growth expectations and lower unemployment] that the Fed is increasingly confident it can achieve a soft landing and that the economy can withstand higher interest rates for longer."

LH Meyer/Monetary Policy Analytics Economist Derek Tang

"The contours of the dot plot are largely in line with expectations, but the rise to 5.1% in 2024, rather than just 4.9%, leaves me jaw-dropping. I find no point above 5.6% in 2023, meaning that even the most hawkish no longer see the need for two more rate hikes, sending a dovish tone in the short term. The number of people expected to not raise rates again this year is seven, which is a comfortable margin for Powell."

Anna Wong, Chief Economist at Bloomberg Economics

"If the September forecasts for unemployment and inflation are very positive, then Bloomberg Economics' rule does fit the dot-plot forecast of only two rate cuts of 25 basis points each next year and 120 basis points in 2025. Our view is that the risks lean towards a weaker economic outlook than the September forecast - we think the Fed will end up cutting rates more than the dot-plot forecast."

Audrey Childe-Freeman, Chief Foreign Exchange Strategist, G10, Bloomberg

"There is not much in today's Fed policy decision or policy statement that is likely to deter the dollar bulls in the short term, as the message of long-term interest rates remaining at their highs remains strong, meaning dollar yields remain attractive for now. And, more surprisingly, the adjustment in the GDP growth curve this year and next has also put the dollar bulls in a temporarily strong position. Whether this can be sustained clearly depends on whether a soft landing scenario emerges."

David Powell, Head of Marketing Strategy, TradeStation

"Today's slightly hawkish statement from the Federal Reserve reflects the strength of the economy we've seen since the last meeting. Policymakers don't have any dovish incentive right now, especially with rising oil prices, auto industry strikes threatening wages and potential car price increases... This statement keeps them dependent on data, which could be a bullish factor if housing costs continue to ease. Powell isn't ready to back down yet, but the market may take his remarks lightly. Investors know he's cautious about declaring a win over inflation after his infamous blip inflation theory two years ago."

Peter Tchir of Academy Securities

"They don't want to cut rates. They want to keep rates higher for longer. In the most recent summary of economic forecasts, rates at the end of 2024 and the end of 2025 were both 50 basis points higher than the June forecast. This move is significant, but it seems to be in line with our'very high bar for rate cuts' view. They barely summoned the courage to raise rates by another 25 basis points this year, and in the press conference, he (Powell) seemed to have to contain himself from sounding dovish (he did not appear hawkish), and we may have gone from'high bar for rate hikes' to'very high bar for rate hikes'. Yes, they rely on the data, maybe it's my wishful thinking, but they seem to be looking for reasons to do nothing from the data! The Fed has always been'data dependent ', but they often seem to be biased. Up until the early summer of this year, they seemed to be looking for an excuse to raise interest rates. I just didn't see that from his language or their actions (keep in mind that his goal is not to come across as a dove, so any less abrasive hawk could be an admission of neutrality). So far, Treasury yields have become more inverted across the curve because the front end has sold a bit (pricing rates will be higher and longer), but the back end has rebounded a bit (considering today is FOMC day and we are close to high yields this year) and the trend is quite flat. "

And finally.Industrial foreign exchangeTo sum up the market trend: at first, U.S. Treasury yields were higher and U.S. stocks were lower. But during the press conference, both reversed, and then reversed again, and yields returned to intraday highs. The dollar rose above the 105 mark, and the yield on the 10-year U.S. Treasury note stood at 4.4%, continuing to hit a new high since 2007. The three major U.S. stock indexes closed down on Wednesday, while the Nasdaq closed down more than 1.5%. Gold as a whole fell, with spot gold falling back $17 from its daily high and returning to just above the 1930 mark. Fed swaps show that the market prices the Federal Reserve to peak interest rates at 5.49% in January next year.

Stuart Kaiser of Citibank said: "These Fed moves are broadly consistent with better growth prospects. Higher interest rates are a tactical risk for equities, but in our view the medium-term change in the summary of economic forecasts is positive for equities. It is important to note that the FOMC is implying fewer rate cuts, not more rate hikes."