The ＂year of interest rate reduction＂ was put in question mark! The Year of the Loong, the global central bank, is divided： Is the banner of raising interest rates still standing？

Cailian News on February 19th (edited by Xiaoxiang)Will 2024 really be a "year of interest rate cuts" for global central banks? As time officially entered the the Year of the Loong of the Lunar New Year, people’s predictions that were once firmly believed at the end of last year have now become more and more shaken-at least, it seems increasingly unlikely that countries will open the door to interest rate cuts at the same time in a short time, just as the major global central banks entered the tightening cycle two years ago …

There are signs that, with the influence of domestic driving factors that determine the price outlook gradually replacing the global trend, the synchronization of monetary policy in developed countries in the past four years is about to begin to crack.

Some central banks may even raise interest rates in 2024 …

As a pioneer in setting up inflation targeting system in the early 1990s, the New Zealand Federal Reserve is very good at setting the trend of monetary policy. According to ANZ economists, the Fed may raise interest rates again at the end of February at the earliest, and traders believe that New Zealand may once again break the consistency of monetary policies of major global central banks.

In addition, Australia, New Zealand’s neighbor, has recently become more hawkish. Michele Bullock, chairman of the Reserve Bank of Australia, said earlier this month that "the possibility of further interest rate hikes cannot be ruled out", which highlighted the policy path completely different from market expectations. The market originally thought that the Reserve Bank would adopt a dove tone at its first interest rate meeting this year on February 6.

In fact, even the Federal Reserve, which everyone expected to cut interest rates many times in 2024 at the end of last year, seems to be facing new variables at the arrival of the Lunar the Year of the Loong.

After the release of ——CPI and PPI, two US heavy inflation reports that exceeded market expectations in zhou yuan, the surge in employment growth, the persistent stickiness of inflation and the overall economic performance of the United States, which are constantly contrary to pessimistic expectations, have pushed the yield of US Treasury bonds back to the highest point in about two months, and traders have greatly lowered their expectations for interest rate cuts this year.

The current interest rate forecast of the US interest rate futures market at the end of this year is almost consistent with the bitmap of the Federal Reserve in December.-The median forecast of policy makers corresponds to three interest rate cuts of 25 basis points in 2024, and the current pricing of derivatives contracts also corresponds to the same range, and it is estimated that there is only a small possibility of a fourth interest rate cut. You know, at the end of last year, traders once bet that there would be seven interest rate cuts this year.

More extreme, it is also the "interest rate hike" voice issued by several Wall Street investment banks and former US Treasury Secretary Summers last week.Kit Juckes, an analyst at Socié té Gé né rale, said last week that the Fed "has no reason to rush" to cut interest rates. If the US economy accelerates growth again, then the Fed’s next interest rate decision may be to raise interest rates rather than cut interest rates.

Summers, the former US Treasury Secretary, also threatened in a recent interview that the Fed’s next step is likely to raise interest rates instead of lowering them. He believes that the Fed’s actions must be "very careful".

At the same time, Japan, which has been in an ultra-loose state for a long time, may raise interest rates for the first time since 2007 in the coming months.

Judging from the latest policy expectations of these central banks, whether 2024 is a "year of interest rate reduction" that was originally brilliant in the industry really needs to be marked with a big question mark. At least in the first half of this year, the strength of the "interest rate hike camp" is still completely enough to compete with the "interest rate cut camp" …

Will the Year of the Loong, the global central bank, embark on the road of divergence?

Of course, the easing path of some major global central banks during the year may not be easily changed, such as Europe, where the economy is on the verge of recession.

Last year, the euro zone only narrowly avoided economic recession, and its price pressure fell faster than expected, which supported the views of those in the industry who promoted early interest rate cuts. Traders are also betting that the Swiss National Bank will cut interest rates as early as next month. Britain is still in the dilemma of economic recession and high inflation, which may put the Bank of England in the most difficult situation.

The latest economic forecast of the International Monetary Fund (IMF) highlights this difference:The economic outlook of the United States has improved, the economic outlook of the euro zone has deteriorated, and the economic data of the United Kingdom is bleak.

Bond traders now predict that after one year, the benchmark interest rate in the United States will drop by about 100 basis points, Europe will drop by about 120 basis points, while Australia will only be about 40 basis points lower than the current level, and Japan will raise interest rates by about 30 basis points.

Citigroup strategists said that traders need to hedge against the risk that the Fed will raise interest rates soon after a very short easing cycle.

This is what the world’s major central banks, including ECB officials, are trying to avoid. They are worried that a quick 180-degree turn may eventually prove that they underestimate inflation again.

In the past six months, policy makers in various countries have spent a lot of time discussing the risk of acting too early or too late. The former may be startled by the renewed price pressure, while the latter may restrain demand too much. But at present, the latter has obviously gained more support.

Pierre-Olivier Gourinchas, chief economist of IMF, said that central banks should avoid premature easing, because it will lose hard-won credibility and lead to a rebound in inflation; However, we should not delay the interest rate cut too much, so as not to endanger economic growth and put the inflation rate at risk of falling below the target.

He wrote in a recent report: "My feeling is that the United States, where inflation seems to be more demand-driven, needs to pay attention to the above-mentioned first-class risks, while the euro zone, where soaring energy prices have played a disproportionate role in the upward inflation, needs to manage the second-class risks even more. In both cases, it may not be easy to maintain a soft landing. "

In the long run, central banks in Europe, North America and the South Pacific must deal with different structural problems, such as different population growth rates, energy import dependence, supply chain transfer and housing dynamics. Therefore, the global monetary policy consistency that has emerged since mid-2020 (COVID-19 outbreak) will almost inevitably weaken.

Mickey Levy, a visiting scholar at the Hoover Institution, said, "Central banks will cut interest rates at different rates. Although inflation is declining in most places, central bank governors are facing different inflation and economic conditions, which determines the appropriate policy interest rate needed to achieve their goals. "

Looking ahead to this week, the minutes of the January meeting of the Federal Reserve and the European Central Bank, which will be released on Wednesday and Thursday, are expected to be closely watched by people to understand the latest views of internal officials of the two central banks on the direction and pace of policies.