After the Fed's continued interest rate hikes, traditional market influencers couldn't sit still.

23-03-23 14:37
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On March 23, the Federal Reserve announced another 25 basis point rate hike, while Powell continued to be hawkish in his speech, rejecting optimistic expectations such as "pausing rate hikes" and "lowering rates within the year" that were speculated in the market. BlockBeats has compiled and translated the views of some important figures in the market on this rate hike and their expectations for the future.

BitMEX founder Arthur Hayes: The faster the Fed raises interest rates, the faster it will cut them

If Powell raises interest rates faster, he will have to cut them faster. I will buy at the dip when Bitcoin prices fall. Thank you, Powell, for providing more entry opportunities. BTC will reach $1 million.

Previously, Hayes analyzed in his latest article "Kaiseki" on March 16th that unless short-term interest rates drop to deposit rates that banks can offer to compete with repurchase tools and short-term government bonds, the banking system cannot recover profits (thus creating more loans). The market is calling for deflation supported by the banking system, and the Federal Reserve will eventually listen. Even if it does not start cutting interest rates at the March meeting, a severe economic recession in a few months will force it to turn to it.

Real Vision Founder Raoul Pal: If the banking crisis intensifies rapidly, the Federal Reserve will cut interest rates urgently

If the Federal Reserve raises the federal funds rate to 5% and adopts a tightening stance, this may weaken banks. Weaker banks may encounter financial difficulties, which could lead to a loss of confidence in the banking system and trigger a run on deposits. In this case, US Treasury Secretary Yellen may intervene to provide guarantees for deposits. However, Yellen's deposit guarantee may not work in this situation due to the rapid rise in short-term interest rates causing an inverted yield curve. If depositors expect rates to rise, they may withdraw funds from banks and invest in higher-yielding assets. This could lead to a liquidity crisis for banks, rendering Yellen's guarantee ineffective.

My guess is that if the banking crisis intensifies rapidly, the Federal Reserve may need to cut interest rates urgently.

Pershing Square CEO Bill Ackman: 5% interest rates will lead to accelerated outflow of bank deposits

Consider the impact of recent events on the long-term cost of equity capital for non-systemically important banks. As a shareholder or bondholder in these banks, you could wake up one day to find your investment worth nothing. Coupled with rising debt and deposit costs due to increasing interest rates, consider the impact this will have on loan rates and our economy.

This banking crisis will cause greater damage to small banks and their ability to obtain low-cost capital the longer it lasts. Trust and confidence are earned over years but can be lost in a matter of days. I am concerned that we are headed towards another train wreck with potentially disastrous consequences. I hope our regulatory agencies do the right thing.

5% interest rates have greatly reduced the attractiveness of bank deposits, and I would only be surprised if the outflow of deposits does not accelerate immediately. Temporary system-wide deposit insurance is needed to stop the bleeding. The longer the uncertainty persists, the more lasting the damage to small banks and the harder it is to regain customers.

Citigroup CEO Fraser: It is the responsibility of the Federal Reserve to combat inflation, and raising interest rates is in line with expectations

The primary responsibility of the Federal Reserve is to combat inflation, and raising interest rates is in line with Citigroup's expectations. Only a small portion of the population will be negatively affected by the Federal Reserve's interest rate hike.

The impact of individual bank failures will not spread to the entire US banking system, and this is not a credit crisis. Regulatory agencies have responded quickly and effectively to the bank failure crisis.

"Fed Whisperer" Nick Timiraos:

The Federal Reserve has abandoned its language of "continuing rate hikes would be appropriate" for eight consecutive months.

The Federal Reserve raised interest rates by 25 basis points again, bringing the benchmark federal funds rate to between 4.75% and 5%, the highest level since September 2007.

The officials of the Federal Reserve hinted in the policy statement after the meeting that they may soon stop raising interest rates. The statement said, "The Committee expects that some further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective over the medium term." The Fed officials abandoned the language used in the previous eight statements, which stated that the Committee expects "further gradual increases" in interest rates to be appropriate.

The turmoil caused by the banking crisis provides the most compelling evidence to date that interest rate hikes have spillover effects on the broader economy. This turmoil serves as a powerful reminder that Federal Reserve officials, regulatory agencies, members of Congress, and the White House face risks in attempting to contain inflation that soared to a 40-year high last year.

US policymakers have alleviated the economic impact caused by the COVID-19 pandemic in 2020 and 2021 by providing significant financial aid and cheap funding. Congress and the White House have largely delegated the task of suppressing price pressures to the Federal Reserve.

The federal funds rate affects other borrowing costs throughout the economy, including mortgage, credit card, and auto loan rates. The Federal Reserve has been raising rates to cool inflation by slowing economic growth. The Fed believes these policy measures affect markets by tightening financial conditions, such as raising borrowing costs or lowering stock and other asset prices.

Two weeks ago, Powell hinted that officials would discuss whether to raise interest rates by 25 basis points or 50 basis points. Prior reports showed that recruitment, spending, and inflation at the beginning of this year were stronger than they thought at the February meeting. On March 7th, Powell testified before the Senate Banking Committee, saying, "In my view, there is no evidence in the data that we have overtightened."

中金: The end of the Fed's interest rate hike is near.

The monetary policy statement suggests that the end of the rate hike is near. The recent banking industry turmoil has reduced the need for further rate hikes. However, due to the resilience of inflation, a rate cut is not likely to come soon, and the Fed's guidance on rates staying high for longer remains. Compared to the Fed's "calmness," the market does not agree, and investors believe that the Fed has underestimated the potential impact of this round of banking industry turmoil, leading to more expectations of rate cuts. We believe that the banking industry turmoil is a demand shock that will have a restraining effect on economic growth and inflation. However, considering that the US still faces many supply constraints, this will reduce the impact of demand shocks on inflation, and the ultimate result is more likely to be a "stagflation" pattern.

The end of the Fed's interest rate hike is near (Powell has repeatedly emphasized that the current banking problems will cause credit tightening, which will also have a restraining effect on growth and inflation), but there is still a lot of uncertainty in the path of interest rate cuts, depending on the interpretation of inflation and current financial system risks. Excessive expectations of interest rate cuts actually imply concerns about the potential risks that the banking system may still face in the future. This also means that unless systemic risks further escalate, there is relatively limited room for further downward movement of the 10-year U.S. Treasury yield at its current level.

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