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How does the Fed’s interest rate hike and shrink the table affect the steel market?

How does the Fed’s interest rate hike and shrink the table affect the steel market?

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On May 5, the Federal Reserve announced a 50 basis point rate hike, the largest rate hike since 2000. At the same time, it announced plans to shrink its $8.9 trillion balance sheet, which began on June 1 at a monthly pace of $47.5 billion, and gradually increased the cap to $95 billion per month within three months.

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The Fed officially entered the interest rate hike cycle in March, raising interest rates by 25 basis points for the first time. The 50 basis points rate hike this time was expected. At the same time, it began to gradually shrink its balance sheet in June, with a moderate intensity. Regarding the late-stage interest rate hike path that is widely concerned, Powell said that committee members generally believe that the issue of further interest rate hikes by 50 basis points should be discussed in the next few meetings, denying the possibility of a future interest rate hike of 75 basis points.

The first estimated data released by the U.S. Department of Commerce on April 28 showed that the real U.S. gross domestic product in the first quarter of 2022 fell by 1.4% on an annualized basis, the first contraction of the U.S. economy since the second quarter of 2020. Weakness will affect the Fed’s policy operations. Powell said at a post-meeting press conference that U.S. households and businesses are in good financial shape, the labor market is strong, and the economy is expected to achieve a “soft landing.” The Fed is not worried about the short-term economy and remains concerned about inflation risks.

The US CPI in March increased by 8.5% year-on-year, an increase of 0.6 percentage points from February. Inflation remains high, reflecting supply and demand imbalances related to the coronavirus, higher energy prices and broader price pressures, the Federal Open Market Committee, the Fed’s policymaking body, said in a statement. The Russian-Ukrainian conflict and related events are putting additional upward pressure on inflation, and the Committee is highly concerned about inflation risks.


Since March, the Ukrainian crisis has dominated the overseas steel market. Due to the shortage of supply caused by the crisis, the overseas steel market prices have risen significantly. Among them, the European market price has hit a new high since the epidemic, the North American market has turned from falling to rising, and Indian export quotations in the Asian market. A substantial increase, but with the recovery of supply and the suppression of demand by high prices, there are signs of adjustment in overseas market prices before May Day, and my country’s export quotations have also been lowered.

In order to curb inflation, the Reserve Bank of India announced on May 4 that it would raise the repo rate as the benchmark interest rate by 40 basis points to 4.4%; Australia started raising interest rates for the first time since 2010 on May 3, raising the benchmark interest rate by 25 basis points to 0.35%. . The Fed’s interest rate hike and balance sheet reduction this time are all expected. Commodities, exchange rates and capital markets have already reflected this in the early stage, and market risks have been released ahead of schedule. Powell denied a one-time rate hike of 75 basis points in the later period, which also dispelled market concerns. The period of the highest rate hike expectations may be over. On the domestic front, the central bank’s special meeting on April 29 stated that various monetary policy tools should be used to maintain reasonable and sufficient liquidity, and to guide financial institutions to better meet the financing needs of the real economy.

In the domestic steel market, the demand for steel has been weak since the beginning of the year, but the market price performance is relatively strong, mainly due to multiple factors such as strong expectations, rising overseas prices, and poor logistics caused by the epidemic. After the epidemic is effectively controlled, ruixiang Steel Group will resume the suspended carbon steel production line and continue to provide high-quality products to overseas users in more than 100 countries.

Post time: May-07-2022