The Zhitong Finance App learned that Northeast Securities released a research report saying that the Federal Reserve's interest rate hike in September landed. The bitmap shows that Fed officials generally expect another rate hike in 2026, which may remain the same for some time thereafter. With the current economy not overheating, the Federal Reserve has begun to raise interest rates preventively. Under the current guidance of the Federal Reserve, it is inappropriate to underestimate the risk of interest rate hikes in December. Judging from US wage growth and real estate conditions, it currently has little potential for endogenous inflation, so I don't think it will enter a continuous process of rapid interest rate hikes thereafter. They are more likely to think that it is similar to the 2016 cycle, where interest rates continue to be suspended after a slight increase.
The main views of Northeast Securities are as follows:
I don't think it will enter a continuous process of rapid interest rate hikes after that
After last week's inflation data exceeded expectations, the market's expectations for the September rate hike were quickly reversed. Now that the boots have landed, the market is most concerned about two issues: (1) the future path of monetary policy; (2) if the Federal Reserve enters the interest rate hike cycle, how to choose assets next?
The bitmap shows that Federal Reserve officials generally expect another rate hike in 2026, which may remain unchanged for some time thereafter, before cutting interest rates again in 2028. The basis for this decision is mainly based on Walsh's statement that “America's current domestic spending remains resilient, productivity growth is strong, capital investment is strong, credit flows are strong, and the financial situation is difficult to describe as restrictive.” This statement is consistent with the data seen, that is, after the US cut interest rates by 175 BP in the early period, compounded the potential economic growth rate and the rise in neutral interest rates. The 3.75% policy interest rate may no longer limit the US economy, and the US economy has experienced a broad spectrum of cyclical recovery over the past year. It's just that in the current situation where the economy is not overheated, the Federal Reserve has begun to raise interest rates preventively. This prudent move has earned the Federal Reserve credibility, and will also help further develop Walsh's future work.
Under the current guidance of the Federal Reserve, it is inappropriate to underestimate the risk of interest rate hikes in December. Judging from US wage growth and real estate conditions, it currently has little potential for endogenous inflation, so I don't think it will enter a continuous process of rapid interest rate hikes thereafter. They are more likely to think that it is similar to the 2016 cycle, where interest rates continue to be suspended after a slight increase. Then, if the economy continues to strengthen in the second half of 2027, it will officially start a continuous cycle of interest rate hikes.
If the Federal Reserve enters a cycle of interest rate hikes, how will assets be selected next?
In the context of this policy expectation, the most beneficial asset will be commodities (the main increase in copper often rises during the interest rate hike cycle, because the reason for interest rate hikes is overheating, and overheating is also the real reason for the rise in copper). Copper prices may fluctuate for a short period of time due to concerns about continuous interest rate hikes in the short term. However, copper's logic card position is better. From the cycle of interest rate cuts to the continuous cycle of interest rate hikes, there is an essential link in the middle of this logic, which is “overheating.” If there is no overheating, the fact that the Federal Reserve continues to raise interest rates will not be possible; if there is overheating, copper will have already made good profits before interest rate hikes begin.
Equity assets are the same. They are still actively bullish on the equity market and industrial metals, supported by strong economic fundamentals and supported by strong economic fundamentals, with limited impact on equity markets and industrial metals before the official start of continuous high-intensity interest rate hikes. However, if a continuous cycle of interest rate hikes begins in the second half of 2027, the future may enter a lengthy valuation process. In terms of interest rates on 10Y US bonds, if the US Treasury intervenes, long-term interest rates may be suppressed in the short term, but in the era of scarce capital, 5% will not be the top of the 10Y US bond interest rate. However, the current yield is only moving along a slow upward trajectory driven by fundamentals, and there is no concern about the rise in interest rates at this stage. On the US side, it was suppressed in the short term due to strong intervention by the US Treasury Department, but against the backdrop of rising interest rates on US bonds, it is also inappropriate to easily underestimate the US dollar.
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