At the Federal Open Market Committee (FOMC) meeting on the 1st, the Fed is expected to continue to tighten monetary policy with the aim of curbing inflation, while continuing to reduce the range of interest rate increases.
Federal Reserve Board (FRB) Chairman Jerome Powell, who will hold a press conference after the meeting, is expected to play down speculation of a rate cut within the year, pointing out that there is no change in the possibility of further rate increases.
The US Fed, which had raised interest rates by 0.75 percentage points for four consecutive meetings until November last year, slowed the pace of rate hikes to 0.5 percentage points in December. It is widely expected to compress further to 0.25 percentage points this time, with a target range of 4.5-4.75% for the federal funds rate.
Quarterly economic forecasts are not scheduled to be released, and the authorities will continue to work on fighting inflation through the FOMC statement to be released at 2:00 pm likely to emphasize that it is not over yet .
“While doves and hawks have repeatedly said that policy rates are likely to remain at their peak for some time, the market is optimistic,” said Ellen Zentner, chief US economist at Morgan Stanley. “Thinking is different,” he said.
Recent data from the US economy shows signs of easing price pressures and slowing growth, suggesting that the Fed’s aggressive interest rate hikes are beginning to take effect. However, as the labor market remains tight, the authorities may be under even greater pressure to continue the interest rate hike or to keep interest rates on hold at a preventive level for an extended period of time.
Officials have said in the past that raising the federal funds rate target above 5% and keeping it there would spread the effects of higher rates across the economy.
Morgan Stanley’s Zentner said that even after the Fed stops raising interest rates, if the Fed remains at a high level, real interest rates will become more restrictive as inflation slows and explain that it can be maintained.
UBS Group US Chief Economist Jonathan Pingle said the Fed’s quarterly economic outlook released in December predicted the median target would be raised to 5.1% He said one of the points of interest is whether the company refers to it as an accurate reflection of the officers attitude even at this time.
Recent price data shows that inflation is slowing faster than officials expected, and there may be clues as to what Fed Chairman Powell might say about it. Personal Consumption Expenditure (PCE) Price Index in December YoYIt rose 5%, the slowest growth since 2021, but is still well above the official target of 2%.
“They are becoming more and more confident that inflation is peaking,” Pingle said of officials, but said “it would be too early” to indicate that a halt to rate hikes is imminent, he said.
Financial conditions in the United States are the most accommodative since February last year. Investors are speculating that the Fed will soon end rate hikes and cut rates later this year due to slowing inflation.
“The biggest mystery is how officials will respond to the relative easing in monetary conditions since the last meeting in December,” said Thomas Costerg, senior US economist at Pictet Wealth Management. He expects further rate increases in March and May. Personally, I can’t imagine it,” he said.
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