Table of Contents

1. Impact of US Interest Rate Hikes in History

2. Analysis of US Interest Rate Hike Process in 2023

3. The Correlation Between Interest Rate Increase And Investment Products

4. FAQs

Since November last year, international gold prices have continued to rise. Comex gold prices have risen by more than 18% since November to the end of January this year.

The most critical factor affecting the trend of gold prices this year is that the core logic that currently dominates the trend of the precious metals market is still the Fed's interest rate hike policy and market expectations for its policies.

Fed Interest Rate Hike Timetable

Since March 2022, the U.S. Federal Reserve has raised interest rates eight times, with a cumulative rate hike of 450 basis points. The reason for the crazy rate hike in 2022 stems from the rising inflation in the United States. Looking back at June last year, the US CPI was as high as 9.1%. Although the CPI fell to 8.5 percent in July, it is still at a 40-year high. This is the main reason why the Fed has raised interest rates so aggressively.

The final impact of interest rate hikes is the price of the US dollar, while the price of the US dollar will indirectly affect the price fluctuations of crude oil and gold. As of February 1, the US dollar price has fallen to 102.09; the US crude oil price has reached 79.39 US dollars, while the gold price has reached a new high in October, reaching a maximum of 1948 points.

So looking around the whole of 2022, the performance of the U.S. dollar index, spot gold and global crude oil has fluctuated extremely obviously. Therefore, in the face of the uncertainty of future interest rate hike expectations, how we should face the brand new 2023 is the core content of this article.

Impact of US Interest Rate Hikes in history

If the year 2022 alone is not enough to prove that the U.S. interest rate hike can affect the world, then let’s take a look at the global impact of the U.S. interest rate hike in history:

The Historical Cycle And Impact of US Rate Hikes

Judging from the above historical data, the duration of each interest rate hike varies, ranging from as short as 11 months to less than a year, to as long as 36 months. At the same time, the economic impact on the world is also different. From the perspective of the cause of these interest rate hikes, it is mainly to solve the inflation problem in the United States itself.

Analysis of US Interest Rate Hike Process in 2023

◆Fundamental Analysis

Raising interest rates is a double-edged sword. On the one hand, it can curb the rise of inflation, and on the other hand, it will affect the development of the US manufacturing industry. The reason is very simple, that is, some enterprises and factories are unwilling to borrow money from the government and banks when interest rates are high. Without the support of bank liquidity, enterprises and factories will face huge production pressure when they start construction. To revive the U.S. economy, these businesses and factories need to be up and running so that the unemployed can work and earn money. Therefore, raising interest rates all the time will put the US economy under tremendous pressure.

◆Data Perspective Analysis

Actual inflation and economic data can most directly reflect the impact of interest rate hike policy, and are also the key to how to adjust subsequent policies.

◆Analysis From CPI Data

The data is one of core U.S. inflation data. If the relevant data exceeds market expectations, it means that the price of consumer goods has soared and the dollar has depreciated. If you want to suppress prices, you need to use the tool of raising interest rates. Therefore, the increase in CPI data brings about the expectation of raising interest rates.

Data analysis: Judging from the data, the CPI data has been declining since reaching a peak of 9.1% in June last year. As of January 12, it was only 6.5. It can be seen that the US economy is gradually improving.

◆Analysis From PPI Data

The data is one of the core inflation data in the United States, and it is also the most important CPI forward-looking data. If the relevant data exceeds market expectations, it can be read that the rising cost of manufacturing will curb economic development, which will bring expectations of interest rate hikes.

Data analysis: Judging from the results, it reached the highest point of more than 11% in April and July respectively, and then the PPI also declined all the way. As of January 18, it was only 6.2. It can be seen that the US economy is gradually improving.

◆Analysis From Employment Index

The non-agricultural employment population, unemployment rate, and hourly wages in the U.S. non-agricultural employment report are data used by the Federal Reserve to assess the state of the U.S. job market and will directly affect the outlook for U.S. interest rates. Therefore, the report is one of the most important indicators of the US and global financial markets. If the data is higher than expected, it means that the US economy is improving, and there is capital and conditions for raising interest rates. Otherwise, it means that there is no implementation environment for raising interest rates.

Data analysis: Judging from the results, the number of new jobs in the United States reached 678,000 and 528,000 only in February and July, and the other months were not ideal and continued to decline. However, as of February 3, 2023, the announced new employment data has far exceeded expectations, reaching an astonishing 517,000 people, so the US economy has obvious signs of rebound.

Because economic data will directly reflect the current economic situation in the United States, and the monetary policy formulated by the Federal Reserve needs to be based on these data, so the quality of economic data can affect the direction of monetary policy. Monetary policy can determine the amount of U.S. dollars entering the investment market. At the same time, the amount of U.S. dollars will lead to fluctuations in the price of U.S. dollars, which will affect all investment products including crude oil, gold, and U.S. stocks.

The Correlation Between Interest Rate Increase And Investment Products

Then, let's compare the ups and downs of investment products such as the U.S. dollar, U.S. stocks, crude oil and gold after the release of economic data.

US Dollar Index

Analysis results: The U.S. dollar rose at the same time as CPI and PPI, and reached its peak in July. After that, as the data fell, the price of the U.S. dollar also fell. This shows that the US dollar has a positive correlation with CPI and PPI.

Analysis results: When the CPI, PPI, NFP and other data reached their peak in July, the price of gold reached a new low, and as the subsequent data fell, the price of gold began to climb. It can be seen that gold has an inverse correlation with various economic data.

Analysis results: Crude oil, CPI, and PPI rose at the same time, and reached their peak in July. After that, as the data fell, the price of crude oil also fell. This shows that crude oil has a positive correlation with CPI and PPI.

Analysis results: When the CPI, PPI, NFP and other data reached their peak in July, the US Nasdaq 100 reached a new low, and as the subsequent data fell, the US Nasdaq 100 began to climb. It can be seen from this that the US Nasdaq Index 100 has an inverse correlation with various economic data.

Conclusion

Through the above data analysis, we can conclude that CPI, PPI, and employment data can all indirectly affect the US monetary policy. The corresponding monetary policy will directly or indirectly affect the rise and fall of the US dollar, US stocks, crude oil and gold. Therefore, in 2023, we can combine different periods and different data results to rationally arrange our operations and use different products to make profits.

The Impact of US Economic Data And Policies on Investment Product Prices

The focus of subsequent market games will shift to how long the peak interest rate can last. However, the specific path still needs to be supported by more economic data, mainly including whether inflation continues to fall, whether the heat in the US job market can be suppressed, and whether the PMI will continue to stay in the booming range in the future, etc.

However, the main judgment data are still based on PMI, PPI, and changes in the number of employed people. They can already be used to judge whether the US monetary policy will raise interest rates. Whether or not to raise interest rates is related to the long-short willingness of investors. Therefore, you only need to keep an eye on the data to know when the market changes, when you can build a position, and when you need to avoid risks, and you can complete most of your investment strategies.

FAQs

★Q1: What Is A Rate Hike?

A rate hike is an action by the central bank of a country or region to raise interest rates. Usually, deposit interest and loan interest are raised, which increases the borrowing cost of commercial banks to the central bank, which in turn forces market interest rates to increase as well. The purpose of raising interest rates includes reducing money supply, suppressing consumption, suppressing inflation, encouraging deposits, slowing down market speculation, and so on. It can also be used as an indirect means to increase the currency value (exchange rate) of the national or regional currency against other currencies. Raising interest rates is not only an economic behavior, but also a product of multiple political and social factors. So why does the rate hike in the United States affect the world?

★Q2: What Is The Organizational Structure of The Federal Reserve?

To understand why the rate hike in the US affects the world, we must first understand the US rate hike unit - the Federal Reserve. The full name of the Federal Reserve is the Federal Reserve System of the United States, which performs the duties of the U.S. central bank, that is, formulating monetary policy and supervising U.S. financial institutions. The Federal Reserve is actually not just a government agency, but a huge system consisting of the Federal Reserve Board located in Washington, D.C., and 12 Federal Reserve Banks located in major cities across the country.

（Distribution Map of The Federal Reserve's 12 Federal Reserve Banks）

The Federal Reserve not only played an important role in events such as the oil crisis, the Internet bubble, and the subprime mortgage crisis, but has always appeared at the most critical juncture as the borrower of last resort. It has also been influencing the global economy through monetary policy.

★Q3: Why Does The U.S. Interest Rate Hikes Affect The world?

Knowing the global status of the Federal Reserve, it is not difficult to understand the weight of the US interest rate hike. The U.S. dollar is the number one currency in circulation in the world, and at the same time, U.S. debt is the currency endorsement of various developed countries. It can be said that the rise and fall of the United States will directly affect the financial stability of other countries. Especially after the collapse of the Bretton Woods system, the United States occupied the sole trade settlement right of crude oil, and forcibly locked global trade with the dollar. Therefore, countries like Japan and the European Union, which rely heavily on imports and exports, will be most affected by the interest rate hike in the United States, while other small countries dare not behave rashly.

★Q4: What Is The US CPI Data?

The U.S. Bureau of Labor Statistics (BLS) releases the U.S. Consumer Price Index (CPI) monthly to reveal the state of U.S. inflation and to assess the outlook for inflation.

★Q5: What Is The US PPI Data?

The U.S. Bureau of Labor Statistics (BLS) releases the U.S. Producer Price Index (PPI) monthly, which reveals U.S. producer price levels and is used to assess the outlook for inflation.

★Q6: What Is The US Non-farm Payrolls Data?

The U.S. Bureau of Labor Statistics ((BLS)) releases the Employment Situation Report (ESR), also known as non-farm payrolls, and labor market reports to assess the overall situation in the U.S. labor market every month. The report includes important labor market data such as changes in non-agricultural employment, unemployment rate, hourly wages, and labor participation rate. It also releases data such as changes in manufacturing employment population, average weekly working hours, and U6 unemployment rate to assess the state of the US labor market.