Guotai Junan International Zhou Hao: Rate Cut Implemented, Powell Turns Hawkish—Market Sends Nine Key Signals
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Rate cuts implemented, tone hardened—the Federal Reserve is redefining market expectations. Let's decipher this "dovish on the surface, hawkish underneath" FOMC and the policy signals behind it. Replay the live broadcast here → October FOMC Explained: Are Rate Cuts a Universal Remedy?
Highlights at a GlanceAlthough the FOMC cut rates by 25bps this time, Powell's tone was "dovish on the surface, hawkish underneath", and internal divisions were unusually strong.Zhou Hao points out that the US inflation anchor has shifted higher, and the future will see a "long-term medication"-like mild easing cycle.Banking sector risk is more about structural squeeze than systemic crisis; pausing balance sheet reduction has secured liquidity.Government shutdown impact on markets is limited; investor “risk numbness” is rising.Macro anxiety coexists with AI exuberance: semiconductors are a key bridge between the two.High US valuations are driven by ROE; high-quality companies are "expensive with good reason."In a positive carry environment, US Treasuries retain allocation value; long-termism is the core safety cushion.Gold is transforming from a safe-haven asset to a risk asset; should be allocated moderately and traded dynamically.
1. The "Smell of Storm" Behind the Fed's Rate Cut
Host Jiji: Yesterday’s FOMC was "dovish on the surface, hawkish underneath." In your view, what factors prompted the Fed's decision? What signals did Powell’s statements reveal?
Zhou Hao: I was indeed surprised by this meeting. Powell unusually mentioned clear internal division—some advocated two consecutive rate cuts, while others opposed cuts. Historically, this degree of division is rare, and the final vote was 10:2. The internal disagreement is severe.
I think by “severe division,” Powell mainly refers to the new governor, Milan’s stance. His addition has stirred up the internal situation, creating confusion in the market, as if "someone has muddied the waters." So, even though the rate cut was delivered, the market instead senses a "storm is coming."
Adding to the external speculation about whether Powell will be reappointed, this meeting felt more like a dramatic event than a policy pivot. Overall, the Fed will maintain a dovish direction, but the policy path will grow more complex.
Powell’s speech also mentioned inflation. His wording has subtly changed—previously he saw tariff-driven inflation as transitory, but now he sees it as possibly persistent. Meanwhile, he also admitted for the first time that the labor market is cooling: hiring is slowing, job openings are declining, and wage growth is moderating. Especially with the AI boom underway, many big firms are laying off to make room for AI investment.
This means the US economy is undergoing a structural shift—AI spending is rising on one hand, the employment structure is loosening on the other, and tariff volatility layers on more uncertainty. Powell's challenges go beyond monetary policy balancing; political and career tests loom as well.
Overall, this seemingly “mild” rate cut actually happened amid sharp structural changes. Every decision-maker is weighing options that "appear safe but are actually not." This was a high-difficulty balancing act and sets up hints for the evolution of future policy in the coming months.
2. "Inflation = Hypertension": The US Has Entered a Long-Term Medication Phase
Host Jiji: The internal split within the FOMC this time is unprecedented. Trump-appointed Milan supports a 50bps cut, while board member Schmid opposes any cut. Will this division persist?
Zhou Hao: The central disagreement lies in judging the "inflation anchor." Most believe the US inflation anchor has shifted higher.
I often use an analogy: it’s like having hypertension—at first you try to manage with exercise and diet, but ultimately you need long-term medication.
The Fed is now in the "just diagnosed with hypertension" stage, hoping to test a new balance through mild cuts, rather than forcibly driving inflation back to ideal levels.
The split between the two board members essentially reflects two academic camps: one advocates aggressive, sharp stimulus, the other prefers gradual, moderate easing.
Broadly, both US and global economic structures are evolving, keeping the inflation anchor relatively high. As long as market-expected inflation and the real inflation anchor converge, the problem will sort itself out.
I don’t think this will take long—the market will have to accept "high inflation as the norm." At that point, the Fed may keep rates at 3%–3.5%, tightening but not losing control of inflation.
The problem now isn’t "lack of measurement", but "lack of psychological acceptance." The market is the same—the data’s clear, but people still deny the new economic reality.
3. Tariffs & Inflation: A Rebalancing of Consumption
Host Jiji: Looking at September’s data, tariffs haven't clearly boosted prices. Does the market still need to overly focus on tariffs?
Zhou Hao: I don’t think there’s much to worry about. On the macro level, household total expenditure is unlikely to rise significantly. When a product gets more expensive, people naturally buy less of it, switch to alternatives, or cut nonessential expenses.
For example: When things go up in price, you might get your hair cut or a massage less often. Rising goods prices are often accompanied by lower service spending, creating a “rebalance.”
Thus, US inflation is actually sticky at a high level—it won’t fall much, but it won’t spiral out of control either. September’s inflation undershot expectations, enabling a rate cut, but doesn’t guarantee a downward trend ahead.
The key now is for the market to accept the new reality: a slightly higher inflation is normal.
“Everyone sees inflation, but hasn’t learned to live with it calmly yet.”
When the market stops panicking at every tiny fluctuation, the US economy will have truly found a new balance. By this time next year, inflation may no longer be the hottest topic.
4. US Banking Sector: Structural Pressure, Not Systemic Risk
Host Jiji: Recently it seems there are liquidity issues in the US banking sector. If, as Powell hinted, there’s no more rate cut in December, could we see another SVB-type event?
Zhou Hao: This concern is overblown. The problems of US small and medium banks mainly stem from being squeezed by big banks for years, forcing them into higher-risk business—it's a structural contradiction, not systemic risk.
For example, if a local bank in China has trouble, its impact on the overall financial system is limited.
After last year’s SVB crisis, there was market panic, but the US proved it still has enough policy tools to handle financial turbulence.
Liquidity is indeed tighter than two years ago, but still in the safe zone. Powell’s halt of balance sheet reduction is itself a liquidity backstop.
Whether the December meeting cuts rates or not won’t have much impact on banking operations. For me, December is mostly a bridge point: 2025 outlooks have already been written, and the market is already priced in.
The real observation point is next March—that may be the crucial time for the Fed to judge if this rate-cutting cycle is ending.
5. Government Shutdown: Market "Numbness"
Host Jiji: The US government has been shut for a while, but markets haven't reacted much—stocks keep rising. How do you see this risk “ignoring”?
Zhou Hao: I think Trump should be happy—the shutdown means he can spend less, cutting fiscal deficit pressure. Wages still get paid, but many outlays will be delayed until next year. The US fiscal year starts in October, so on paper spending is down, but really only postponed.
More importantly, neither party nowadays cares much for shutdowns, and the market is used to them. In the past, risk events meant strong "risk-off," but now, markets have learned to repair themselves quickly.
“Too many risk events, the market's nerves are dulled.”
See this time, after one or two days of correction, US stocks hit new highs, Treasuries and the dollar were steady. This shows everyone’s long accepted uncertainty as normal. Bottoms get higher, V-shaped bounces get shorter—in other words, the market’s panic threshold is rising.
I think that’s not a bad thing—actually, it shows US market resilience is increasing. Even if the government restarts, markets won’t care much, since they no longer need "political repair" to restore confidence.
6. Macro Anxiety vs. AI Euphoria: A World of Contrasts
Host Jiji: This earnings season saw many highlights, with tech giants shining. Despite macro pessimism, the market seems extremely optimistic. How do you view that split?
Zhou Hao: This is actually our core topic today: macro anxiety overlaid by AI euphoria.
The "Magnificent 7" tech giants’ outlooks remain upbeat. Although Meta was a mild letdown, overall, tech earnings momentum remains strong.
Six months ago, almost no one expected AI to permeate daily life so fast. Now almost everyone pays for AI products—this is truly an inflection point.
AI brings an efficiency revolution but also overhauls the labor structure. More and more companies are asking: Which roles can AI replace? Which are irreplaceable?
“AI brings excitement but also exposes anxiety—it’s a mirror of human productivity gains.”
Macroeconomic "tightness" and tech industry "heat" form the most genuine two-sided scene right now.
Macro policy covers the macro side, but investors should look at fiscal and industry sides. The smart investor finds a unique perspective to view the world.
AI is just a surface phenomenon supported by the semiconductor boom era. Between macro and micro, semiconductors are the bridge.
So I advise everyone: Don’t just stare at macro sentiment—look for opportunities via industrial logic.
7. Pessimists Are Right, Optimists Make Money
Host Jiji: You once said "pessimists are right, optimists get rich." On reflection, I’d rather be an optimist. Do you think US stocks are expensive now?
Zhou Hao: Valuation has been debated for years. I prefer to analyze from ROE (return on equity) — companies with high ROE deserve higher valuations, it’s natural.
Currently, the US market is structured so that high-ROE firms lead overall valuation, while low-ROE firms remain cheap—many with PB under 1. It’s only because big firms dominate market cap that the whole market looks expensive.
The key is predicting where ROE trends next. As long as it keeps improving, there’s no concern.
“High-ROE companies are expensive with good reason.”
For example, Oracle had strong results but still laid off 20,000 people; Amazon is optimizing teams too. They keep building imagination while also boosting efficiency: profits come from innovation, savings from streamlining.
I’m not particularly concerned about US market valuation. Top management at quality firms are closely aligned with share prices—they’re highly motivated to lift ROE and stock prices.
8. US Treasuries: The Reward of Long-Termism
Host Jiji: With long-term rates trending down, is it a good time to re-allocate into US Treasuries?
Zhou Hao: Jiji, like we said before—what really carries this market is carry itself.
Short term, US Treasuries are volatile. But over the long run, their returns come from carry. Post-rate cut, the actual overnight rate is about 3.825%. Any bond yielding above that has investment value.
“Bonds yielding above 3.825% are like fat for a bear before hibernation—they help you through the winter.”
After a year or two, this positive return will accumulate into a solid safety cushion.
Many only watch stocks and overlook the stable compounding of long bonds. Even with a good stock market this year, 90% of investors lost money mainly due to lacking "long-termism."
So I advise a long-term view: in a positive carry environment, US Treasuries are still worth allocating; their margin of safety remains high.
9. Gold: From Defensive to Risk Asset
Host Jiji: The last question, the classic one—Gold. Price hit a new high, then swung wildly. Thoughts?
Zhou Hao: Honestly, gold is getting harder to analyze. It’s becoming both like and unlike a derivative. Hong Kong even has "gold experience stores" now, with people queuing up an hour just to buy a little gold—says it’s gone mainstream.
In the past, dollar up, gold up, was a defensive logic; now stocks rise and gold rises too. It shows gold has shifted from "hedge asset" to "risk asset." I suggest: don’t treat gold as a core holding, but as an offensive asset.
Some have compared gold’s moves to Nvidia or bitcoin—they’re very similar.
So in asset allocation, gold should be grouped with "non-yield risk assets" rather than traditional defensive holdings.
"Mid-term, gold is still worth holding; short-term, respect its volatility."
Investors should keep a moderate gold position—not chase highs, not panic—focus on the adjusted Sharpe ratio.
In the future, gold’s role may shift from core defensive holding to an active participant in risk cycles.
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