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Last night marked a significant turning point as the Federal Reserve concluded its highly anticipated monetary policy meetingThe outcomes signal a readiness to scale back on the expansive economic measures that had been in place.

While an immediate interest rate hike was not announced, several indicators suggest a potential shift:

Among the 18 Fed officials who provided economic projections, 7 anticipated rate increases by the end of 2022, up from just 4 only three months earlier

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Furthermore, 13 officials projected an increase in 2023, compared to only 6 previouslyThis shift indicates that a majority of the Federal Open Market Committee (FOMC) members are leaning towards earlier rate hikes, with the median estimate suggesting two increases before the end of 2023.

Investor anxiety around potential rate hikes surged, causing the U.SDollar Index to soar above 91.

Consequently, commodities such as gold, silver, and oil suffered steep declinesNotably, spot gold closed at $1812.13 per ounce, a drop of $46.49, hitting an intraday low of $1803.23.

The yield on the 10-year U.S

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Treasury bond surged by 5.44%, reaching 1.581%.

In the aftermath of the announcement, the three major U.Sstock indexes experienced a sharp dip of nearly 1%. In the end, all three indexes closed lower, with the Dow Jones down by 0.77%, the S&P 500 declining by 0.54%, and the Nasdaq falling by 0.24%.

It is crucial to understand that the predictions made by Fed officials do not equate to definitive actions; even with a majority anticipating rate hikes, it does not guarantee their occurrenceLikewise, speculations of a hike by the end of 2022 do not restrict the Fed to that timeline, as adjustments could happen at any given moment.

Furthermore, the Federal Reserve has explicitly stated that the first rate hike could occur sooner than previously expected.

In summary, until the proverbial shoe officially drops, all speculation remains just that

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After over two years of monetary expansion, the Fed is poised with its interest-rate blade, yet when it will strike remains uncertain, akin to "Schrodinger's Cat" — nobody can predict the outcome.

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In my view, the Federal Reserve's rate increase will likely occur slower than the market expects for two main reasons.

Firstly, despite a slight hawkish tilt, the Fed continues to maintain a certain level of caution regarding rate hikes.

The Consumer Price Index (CPI) for the U.S

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surged by 5% year-over-year in May, the highest rate since August 2008, with the core CPI hitting 3.8%, exceeding market expectations of 3.5% and marking a peak not seen since 1992. Regardless, the Fed seems increasingly tolerant of inflation.

Powell stated that inflation is likely to remain elevated in the coming months before easing.

This implies that high inflation, while concerning, is deemed temporaryThe Fed expects inflation to plateau for a while before it ultimately decreases.

Why does Powell maintain this optimistic view about inflation being controllable?

The crux of the matter lies in prioritizing the restoration of economic growth and increases in employment over concerns about high inflation

Persistently high unemployment could exacerbate social issues in the U.S., which is the paramount concern for the newly installed government.

If the Federal Reserve were to openly acknowledge rampant inflation, it would practically be forced to increase ratesImplementing such a move, however, could be akin to self-sabotage.

Currently, the average monthly increase of non-farm payroll jobs stands at just 460,000 this year, restoring only a quarter of the jobs lost by the end of last yearAs of April, the U.Sunemployment rate has remained above 6%.

In response, the Fed has adjusted its projections for the unemployment rate in 2021 from 3.8% to 4.5%.

From this perspective, as long as inflation rates do not reach levels where even the American public begins to question the Fed’s expansive policies, the accommodative monetary environment is likely to persist

If inflation, as Powell suggests, peaks and recedes, this may significantly delay any potential rate hikes.

Secondly, the Federal Reserve has announced it will maintain its current level of bond purchases, refraining from any indication of tapering quantitative easing (QE).

The Fed declared it would sustain its $120 billion monthly purchase of bonds until substantial progress is made in achieving full employment and price stabilityThe meeting outcomes contained no signals suggesting a future tapering of QE, nor hints of discussions regarding such actions.

The U.S

QE policy can be equated to a nuclear weapon on the global stage, as the current near-zero interest rate policies have led to purchases of mid- to long-term bonds issued by the Fed, effectively a means of printing moneyEach such operation essentially imposes a ‘tax’ on the rest of the world, indirectly benefiting from this strategy.

Americans view QE as a momentary thrill: a temporary pleasure followed by a prolonged enjoyment.

Firstly, the money printed through QE creates dollars from thin air;

Secondly, the excess money can neutralize risks for the U.S., stabilizing its financial markets;

Thirdly, this policy assists the U.S

government in maintaining its deficit spending and expanding fiscal expenditure.

Before the U.Sendeavors to reap financial benefits at the expense of its own citizens, it is paramount to ensure the financial system's stabilityTherefore, when faced with the dilemma of raising rates or ceasing QE, the U.Stypically opts for ending QE first.

As the U.Seconomy requires supportive expansionary fiscal policies, the prospect of tapering QE seems unlikely for the time beingBased on historical patterns, a lack of QE tapering often correlates with the absence of rate hikes.

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For the global market, the U.S

may have instinctively picked up its interest rate cutting tool, yet when it will be utilized remains uncertainRather than worrying about the relatively dull blade of rate hikes which only lead to gradual losses, we should instead brace for a possible tapering of QE — a sharp sword that can drastically destabilize an economy in a short period.

Should the Federal Reserve end QE, what repercussions would there be for China?

Firstly, following the strengthening of the dollar, the Chinese yuan risks entering a rapid depreciation phase, posing a greater risk for a currency that had been consistently appreciating from last year to the presentThe People’s Bank of China has recently issued warnings regarding expectations of yuan appreciation, indicating preparation for potential risks

A swift depreciation of the yuan could significantly affect China's economic recovery, necessitating maintaining stability in the foreign exchange market as a challenging aim for the central bank moving forward.

Secondly, a strengthening dollar implies that the capital influx into China will likely reverseAs of the end of May 2021, China's foreign exchange reserves surged to $32.218 trillion, marking the highest level in over five yearsSuch capital influx has inflated Chinese assets, but the assessment of whether a bubble exists is not entirely in our handsA significant capital outflow could severely impact the stock market and real estate sectors; given the interdependencies with shadow banking and local government debt, mismanagement could lead to systemic risks within the financial sector.

Thirdly, China’s economy is currently recovering at the fastest rate globally post-pandemic