Northeast: Rate hike implemented, how will assets play out going forward?

Northeast released a research report stating that the Fed's September rate hike has landed, and the dot plot shows that Fed officials generally expect one more rate hike in 2026, after which rates may remain unchanged for a period. With the economy not yet overheating, the Fed has already begun precautionary rate hikes. Under the Fed's current guidance, the risk of a December rate hike should not be underestimated. Judging from U.S. wage growth and CKH HOLDINGS real estate conditions, endogenous inflation potential is currently not significant, so it does not believe there will be a continuous rapid rate hike process afterward. It is more inclined to believe this resembles the 2016 cycle, with sustained pauses after small rate hikes. Northeast's main views are as follows: It does not believe there will be a continuous rapid rate hike process afterward. After last week's inflation data exceeded expectations, market expectations for a September rate hike quickly reversed. Now that the decision has landed, the market is most focused on two questions: (1) the future path of monetary policy; and (2) if the Fed enters a rate hike cycle, how should assets be chosen next? The dot plot shows that Fed officials generally expect one more rate hike in 2026, after which rates may remain unchanged for a period, with rate cuts resuming in 2028. The basis for this decision mainly comes from what Warsh said: "U.S. domestic spending remains resilient, productivity growth is strong, capital investment is robust, credit flows are strong, and financial conditions are hard to describe as restrictive." This statement is consistent with the data observed, namely that after the previous 175BP of rate cuts in the U.S., combined with the rise in potential growth and the neutral rate, a 3.75% policy rate may no longer be restrictive for the U.S. economy, and the U.S. economy has experienced broad-based cyclical repair over the past year. It is just that with the economy not yet overheating, the Fed has already begun precautionary rate hikes. This cautious operation has earned the Fed credibility and will also help Warsh carry out his work further in the future. Under the Fed's current guidance, the risk of a December rate hike should not be underestimated. Judging from U.S. wage growth and CKH HOLDINGS real estate conditions, endogenous inflation potential is currently not significant, so it does not believe there will be a continuous rapid rate hike process afterward. It is more inclined to believe this resembles the 2016 cycle, with sustained pauses after small rate hikes. Then, if the economy continues to strengthen in the second half of 2027, a formal continuous rate hike cycle will begin. If the Fed enters a rate hike cycle, how should assets be chosen next? Against the backdrop of this policy expectation, the assets that will benefit most will be commodities (copper's main upward move often occurs during rate hike cycles, because the reason for rate hikes is overheating, and overheating is also the real reason copper rises). In the short term, affected by concerns about continuous rate hikes, copper prices may experience disturbances for a short period. But copper's logic is well positioned. From the rate cut cycle to the continuous rate hike cycle, there is an indispensable link in this logic, namely [overheating]. If there is no overheating, the Fed's continuous rate hikes will not happen; if there is overheating, copper will already have achieved substantial gains before rate hikes begin. The same applies to equity assets. Before a formal continuous high-intensity rate hike cycle begins, supported by strong economic fundamentals, the impact of rate hikes will be relatively limited. At present, it remains actively bullish on the equity market and industrial metals. But if a continuous rate hike cycle begins in the second half of 2027, the future may enter a long process of valuation compression. Regarding the 10Y U.S. Treasury yield, if the U.S. Treasury intervenes, long-end rates may be suppressed in the short term, but in an era of capital scarcity, 5% will not become the ceiling for the 10Y U.S. Treasury yield. However, current yields are only moving along a slow upward trajectory driven by fundamentals, and it is not worried about rate increases at this stage. As for the dollar, due to strong intervention by the U.S. Treasury, it has been suppressed in the short term, but against the backdrop of rising U.S. Treasury yields, it is likewise not appropriate to easily turn bearish on the dollar. Risk warnings The U.S.-Iran situation exceeds expectations, U.S. monetary policy exceeds expectations, and U.S. Treasury volatility exceeds expectations.