CITIC SEC: Fed's September rate hike meets expectations; oil prices become the key going forward; another 25bps hike possible within the year.

CITIC SEC released a research report stating that the Fed's September rate hike of 25bps met expectations, with upward revisions to this year's growth and inflation forecasts, and both the dot plot and Warsh's remarks sending hawkish signals. Strong market expectations made the rate hike a natural choice for the Fed. The pace and magnitude of the Fed's subsequent rate hikes will largely depend on oil prices, which are difficult to predict, but given that headline inflation year-over-year may decline significantly by early next year, the case for continued rate hikes should weaken by then. The firm expects the Fed to hike another 25bps within the year and likely stay put next year. U.S. financial conditions are currently unlikely to ease meaningfully, and under the growth narrative, investors should seek assets supported by fundamentals rather than those benefiting merely from liquidity. CITIC SEC's main points are as follows: The Fed's September rate hike of 25bps met expectations, with upward revisions to this year's growth and inflation forecasts, and both the dot plot and Warsh's remarks sending hawkish signals. The Fed's September FOMC meeting raised rates by 25bps as expected to the 3.75%4% range, with the decision passed unanimously. The statement said the hike will support inflation returning to the 2% target in a more timely manner. The dot plot's median federal funds rate projections for this year and next were both 4.1%, up from 3.8% and 3.6% in June. Of the 18 officials, 12 expect another 25bps hike within the year and 4 expect another 50bps, a notable upward shift from the previous dot plot where only 6 expected the rate range to exceed 4% this year. The Fed's Summary of Economic Projections raised real GDP growth forecasts for this year and next by 0.1ppt each to 2.3% and 2.4%, lowered unemployment rate projections for the next three years to 4.1%, and raised this year's headline and core PCE inflation forecasts by 0.1ppt each to 3.7% and 3.4%. The firm believes these changes reflect the Fed's optimism about U.S. economic resilience and concerns about persistent high inflation. Warsh stated that this decision removed some accommodation, saying the FOMC lacks confidence in inflation coming down and that there is little evidence the inflation trend has passed the test. When asked by reporters why rate hikes are effective against energy supply shocks, he said that while the Fed cannot influence a single price, it will ensure that any price changes do not spill over into other areas and do not produce second- and third-order effects on the economy. The market had fully anticipated this rate hike before the meeting, and expectations for liquidity tightening strengthened slightly after the meeting. Before the decision was announced, CME FedWatch showed the market expected a near 90% probability of a rate hike this month and a cumulative four hikes by the first half of next year. Such strong expectation pressure clearly made going with the flow the safest choice for the Fed. As Brent crude broke above $100 again, the market gradually accepted that September could mark the start of a new Fed rate hike cycle. After the meeting's hawkish guidance, the two-year Treasury yield broke above 4.7%, the ten-year Treasury yield returned above 5%, and gold fell below the $4,300 per ounce mark. Warsh attributed the recent rise in long-term bond yields to three factors: strong U.S. economic growth, capital competition from cloud providers' financing, and geopolitical disruptions to energy and food prices. Seek growth, not easing. The pace and magnitude of the Fed's subsequent rate hikes will largely depend on oil prices, which are difficult to predict. However, a steady rather than overheated labor market does not support an intensified wage-price spiral, and rental vacancy rates rising for four consecutive years indicate moderate rent inflation momentum. Therefore, the risk of second-round inflation caused by energy shocks is small, and headline inflation year-over-year may decline significantly by early next year, at which point the case for continued rate hikes will be weakened. The firm expects the Fed to hike another 25bps within the year and likely stay put next year. At the current oil price of slightly above $100 per barrela level neither sufficient to generate recession expectations nor insufficient to deepen inflation concernsdollar liquidity is unlikely to ease meaningfully. Therefore, long-term bond yields do not yet have clear room to decline, and waiting for the path of Middle East conflict de-escalation to become clear before positioning on the right side may be a better choice. Gold's short-term rebound conditions are fragile, and trading needs attention. The dollar index has support and may fluctuate around 100 within the year. Uncertainties surrounding the Middle East situation, rate hike expectations, and midterm elections persist. U.S. equities may remain roughly range-bound in the near term, but under the growth narrative they may be relatively easy assets for consensus-building, and buying on dips could be considered. Risk factors: Middle East situation evolution or energy shock impact exceeding expectations; Fed's inflation tolerance falling short of expectations; Fed's policy approach exceeding expectations; market liquidity and sentiment changes exceeding expectations.