The US Federal Reserve (Fed) will hold a policy meeting between September 20th and 21st, and is expected to announce the results of its interest rate decision early in the morning on the 22nd, Taipei time. The market will focus on four main focuses: the rate hike in September and the possibility of a rate hike in November, a dot plot of the future path of interest rates, and economic forecasts that will reveal what Fed Chairman Powell has described as previous as “pain.”
The 3 yard gain this week is the most popular
Wall Street expects the Federal Reserve to raise interest rates another 3 yards, lifting the federal funds rate to a range of 3.0%-3.25%, the third sharp increase in a row.
Traders predict a more than 80 percent chance of a three-point rate hike this week and an 18 percent chance of a four-point rate hike, according to CME’s FedWatch tool.
Many analysts believe the odds of a 4-yard rate are remote, with BMO Financial Group chief economist Michael Gregory explaining that an unprecedented 4-yard rate hike could convey a sense of policy panic.
Carlyle Group co-founder David Rubenstein also believes that the Fed has been sending a message from a 3-yard hike to the market, so a 4-yard rate hike is unlikely to scare the market.
However, Nomura Securities cross-asset strategist Charlie McElligott issued a research report on Tuesday warning that the market had severely underestimated the risk of the Fed raising interest rates by 4 yards.
Prospects for a rate rise in November
Federal Reserve Chairman Powell will hold a press conference at 2:30 pm ET on the 21st. Wall Street expects that Powell may emphasize that the Fed will make every effort to fight inflation and is unlikely to reverse his policy stance in the short term. suggested opening the door for a 3-yard fourth down gain in November.
Roberto Perli, director of global policy at Piper Sandler, predicts that Powell will be tough again at the press conference, and that any dovish rhetoric is likely to be the result of miscommunication from the Fed.
Fed Governor Michelle Bowman recently said: “A rate hike of a similar size should be proposed until we see inflation falling in a consistent, meaningful and durable manner.”
“If FOMC officials generally take this ‘like scale’ view, which equates to a 3-yard rate hike, then this should not be the last 3-yard rate hike,” said Tim Duy, a US economist at SGH Macro Advisor.
The final point rate forecast for this cycle of rate hikes
The Federal Reserve raised the federal funds rate by 3 yards on July 27 to a range of 2.25%-2.5%, while economists have been raising the US consumer price index (CPI) in August after exceeding the expectations were unexpected during the last week. the federal funds rate target.
The market is now pricing in a cut-point rate of 4.5% for April next year, up from around 4% before the consumer price index (CPI) was released last Tuesday.
In fact, as early as June, there were indications in the interest rate dot chart that Fed officials have not ruled out the final interest rate being above 4% and moving in the direction of 5%. In the dot plot of the Fed in December last year and March this year, the endpoint rate was only 4%, but the upper limit of the interest rate dot plot in June was 5%.
Economists at Goldman Sachs expect the Fed’s median forecast to see the federal funds rate at 4% to 4.25% by the end of the year, with another increase to 4.25% to 4.5% in 2023, followed by cuts in 2024 and again in 2025.
At the same time, the interest rate dot plot is expected to show a longer path for interest rates while showing that the Fed has no intention of cutting rates next year.
“What the Fed is trying to do is find a viable way to rein in the economy without leading to a full-blown recession,” said Seth Carpenter, chief global economist at Morgan Stanley.
Economic outlook will reveal what Powell previously described as ‘pain’
Ball pointed out at the Jackson Hole annual meeting on August 26 that the Fed’s policy to curb high inflation will cause “pain” for American homes and businesses. Economic forecasts released this week will reveal what Powell described as “painful,” with analysts predicting the Fed will raise its unemployment and inflation forecasts.
The Fed forecast in June that the unemployment rate would be 3.7% this year, unchanged since the August nonfarm payrolls report. Officials also expect the unemployment rate to rise to 3.9% in 2023 and 4.1% in 2024. Over the next three years, US gross domestic product (GDP) growth is projected to grow at just under 2 percent .
Diane Swonk, chief economist at KPMG, expects the pain to develop by the end of next year, when the unemployment rate jumps above 5%.
Priya Misra, head of global rates strategy at TD Securities, expects the Fed to offer a cautiously optimistic outlook on the economy, labor market and inflation to provide evidence that the Fed is willing to take some economic pain to reduce extreme economic pain of high inflation.
Misra also believes the Fed will raise inflation expectations, anticipating whether the Fed will restore core consumer price index expectations to the 2% target within the 2025 forecast range.
Jim Caron, head of global fixed income macro strategy at Morgan Stanley Investment Management, said: “The Fed has to raise unemployment to really contain inflation, and raising rates would increase the risk of recession while reducing the risk of inflation, because it’s about reducing demand at the expense of slower growth going forward.”
