China Merchants Macro: The Federal Reserve Still Does Not Want to Reveal Its Policy Bottom Line

ChainCatcher message,招商宏观评美联储降息：Overall, three signals:

1) The Federal Reserve believes that the impact of the pandemic on employment and inflation has ended;

2) The era of forward guidance has temporarily come to an end. The Federal Reserve is reluctant to reveal all policy cards, and a significant rate cut of 50 basis points is aimed at preventing large fluctuations in U.S. stocks and bonds that have already priced in this expectation. Powell's continued wait-and-see attitude is also to prevent a recurrence of situations similar to early August, when concerns about a hard landing for the U.S. economy led to a reversal of yen carry trades;

3) In addition, the Federal Reserve also wants to prevent a collapse of the siphoning effect on U.S. stocks due to significant rate cuts, which could lead to large-scale capital outflows from the U.S. capital markets. Therefore, until U.S. economic data deteriorates significantly, even if the Federal Reserve cuts rates substantially, it may not significantly boost all non-U.S. assets. However, it can be expected that the U.S. dollar index is likely to struggle to strengthen temporarily, which may alleviate the depreciation pressure on non-U.S. currencies. (Jin Shi)