The US Federal Reserve (Fed) is expected to announce a decision in Taiwan in the early hours of Thursday. In general, the market is expected to raise interest rates by 3 yards (75 basis points) for the fourth time in a row, and Chairman Powell He will reiterate his decision to fight inflation in a press conference Preparing the way for a slower rate rise, but at the same time stressing that this will not affect the final level of the rate, so as not to mislead the market to think that policy has changed.
As well as the possibility of monetary policy turning into a dove, there are six main points to watch in this meeting, including the possibility of refining the wording of the statement, progress in shrinking the balance sheet, objections, and internal ethics.
Following the Federal Open Market Committee’s (FOMC) rate hike, rates are likely to rise to 3.75-4.00%, the highest level since 2008. This time, Powell will hold a news conference after the meeting, but will not releases new economic forecasts until December.
Powell is likely to emphasize that policymakers remain steadfast in their fight against inflation, while retaining mid-December flexibility. The market believes that the possibility of the Fed raising 3 yards again in December or turning to 2 yards (50 basis points) is five or five waves.
Powell’s press conference in July was misinterpreted by investors as a policy change, and the stock market rose sharply. So even if Powell can signal this time that the next few meetings will move to smaller rate hikes, he may be able to avoid another surge in markets on his comments,
Bloomberg economists Anna Wong, Andrew Husby and Eliza Winger said the Fed is almost certain to raise rates by another 3 yards, but there is little certainty about how Powell will communicate to the market a potential slowdown in policy, including which as firm as it will be. , how closely it will be matched with risks associated with rate hikes, impact on break-point interest rates, etc.
“We anticipate that Powell will see a bilateral rate hike as the underlying cause and clarify that a slowdown in rate hikes does not necessarily equate to a lower cut-off rate,” they said.
Julia Coronado, founder of MacroPolicy Perspectives, also said the Fed may only want to slow its rate hikes if it can stabilize financially, which is a communication and messaging challenge for Powell.
Coronado explained that the Fed does not want to see a significant loosening of financial conditions, which must be tightened to keep the economy cool. So while Ball didn’t want to sound dovish, he also wanted to slow down the pace.
The US is facing the hottest inflation in 40 years, and Powell has been criticized for being too slow to respond last year. A number of rate hikes this year have investors worried that the Fed could trigger a recession.
After this meeting, the mid-term elections, which symbolize the “mid-term test” of the Biden administration, will also be held next week. Republicans have attacked the issue of inflation, trying to blame President Biden and Democratic lawmakers. Last week two Democratic senators urged Powell not to raise interest rates too high, causing unnecessary suffering.
Investment banks forecast for November or December fed rate hikes
- Bank of America: November 3 code
- Barclays: November 3, December 3
- Citi: Size 3 Nov, Size 2 Dec
- Deutsche Bank: 3 yards in November, 3 yards in December
- JPMorgan: 3 yards in November, 2 yards in December
- Goldman Sachs: November 3, December 2
- Morgan Stanley: 3 Nov, 2 Dec
- Wells Fargo: 3 yards in November, 2 yards in December
Minor adjustments to the wording of the statement
First, Michael Feroli, chief US economist at JPMorgan, said the November policy statement is likely to keep the words “a sustained rise” in interest rates, but will be “adjusted” in some areas to show that rates closer to the end of the period. the rate hike cycle. He speculates that the Fed could use words like “there are a few more upgrades” as a hint.
After the press conference
Powell, who raised the need to slow rate rises at some point in July, may repeat his comments this time, but keeping the pace in December depends on the flexibility of economic data. Before the Fed meeting on December 13-14, there are still two employment reports and two consumer price indices (CPI) to watch.
Drew Matus, chief market strategist at MetLife Investment Management, said: “The market wants to see a sign that the Fed will slow rate hikes.”
Objections
Around a third of the economists polled predicted that the meeting would not be a unanimous vote. The official most likely to vote against is Kansas Fed President Esther Goerge, who voted for a 2-yard rate hike in June.
Another dissenting vote could come from St Louis Fed President James Bullard, who argued in March that interest rates should be raised more significantly.
balance sheet
The Fed is likely to reiterate that it will shrink its balance sheet at a rate of $1.1 trillion a year, a move economists predict will bring the balance sheet down to $8.5 trillion by the end of this year and another $6.7 trillion by December 2024.
But the market widely expects that the Fed will not talk about selling mortgage-backed securities (MBS).
financial stability
Economists at Nomura said a financial stability report could be released during the meeting. Powell may be asked whether the pace of rate hikes and a possible recession in the US could have ripple effects internationally or disrupt US credit markets.
The US 3-month yield was already above the 10-year yield last week, a so-called inversion (inversion) of the yield curve, often seen as a sign of an impending recession.
Troy Ludtka, senior US economist at Natixis North America, said: “The US is not ready for the 4.5% end point. The international community is more scared. Europe is not doing well, it is not China is in recession again, but I think they have been in a long time. , the slowest growth in a long time.”
A moral issue
Ball may also be questioned about the ethics of officials during the press conference. Raphael Bostic, president of a bank in Atlanta, recently disclosed that he was violating the central bank’s financial trading policy, prompting Powell to ask the Fed’s internal inspectors to review his financial disclosures as well.
In another surprise, Bullard attended a conference hosted by Citigroup in Washington last month to discuss monetary policy, but no media was invited. In this regard, Bullard said, if there are similar meetings in the future, they will be carefully evaluated.
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