[ U.S. stocks hit highs, but layoffs continue ] 👀

Since the beginning of 2024, the three major U.S. stock indexes: Dow Jones, S&P500, and Fei Ban Index have hit record highs, inflation continues to fall, and the market is optimistic about interest rate cuts, but the news of layoffs is coming out one after another. How long will this economic expansion last, and will there be potential risks in the market that have been overlooked 🧐?

Since the current round of interest rate hikes, except for the rapid rise in Intrerest Rate, which caused bond price losses and once triggered the crisis of small and medium-sized banks, there has basically been no liquidity risk, mainly because the release of funds deposited in the Fed's overnight sell-back operation (ON RRP) has a buffer effect; but the current ON RRP is almost 200 billion or more outflows per month, leaving less than 600 billion funds in ON RPP, which is estimated to be in Q2 at the earliest There is a chance to bottom, and after the bottom, it will be absorbed by the bank's excess deposit standard, and when the excess deposit standard falls to 10% ~ 12% of the total assets, it will affect the Intrerest RateFluctuation
Therefore, before Q2, whether monetary policy can turn to release liquidity and pause balance sheet reduction as scheduled will become the key, and before the ON RRP is exhausted, the Fed has a high probability of starting to discuss adjusting the speed of balance sheet reduction at the January and March meetings, which is the focus of the follow-up minutes
Supplement:
🔖 In the minutes of the Fed's December meeting, many members made it clear that the pace of balance sheet reduction would slow or stop when bank deposits fell to just above the ample level
🔖 Dallas Fed President Logan, a former manager of the New York Fed's SOMA account and managed the Fed's bond purchases and balance sheet reduction, also said in a one-eighth public speech that the pace of balance sheet reduction should be slowed down as the ON RRP falls to a low level

Another thing to note is that before the relationship between the base period protection, so that each period of inflation can decline as scheduled, there is a beautiful number, and observe this year's base period effect, energy and core commodities have no base period protection, mainly affecting core inflation services and rents, the base period is still high, so whether this year's inflation can continue to move towards the Fed's expected year-end target, to a greater extent, depends on the actual balance of supply and demand, the decline in the monthly change in inflation, and the problem of excess Liquidity depletion mentioned above. The timing of the policy shift, so the inflation fault tolerance rate in 2024 will be lower than last year (although the core inflation in the first half of the year will continue to drop for the time being)

🚨At the junction of Q2 ~ Q3, the Federal Reserve and the market will re-examine the annual interest rate cuts, and the short-term market may have a significant Fluctuation at that time Intrerest Rate

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