“Austerity talks are too early” Things to know at FOMC in January [김영필의 3분 월스트리트]

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The results of the Federal Open Markets Committee (FOMC) in January, which came out of controversy over GameStop and AMC’s soaring stock prices, remained unchanged as expected.

Interest rates were frozen and we decided to maintain the rate of asset purchases worth $120 billion per month. On this day, Jerome Powell, chairman of the Federal Reserve (Fed), drew a line saying that it was’premature, too early’ regarding the austerity. It was also said that there was little chance of inflation exceeding the target of 2% on average for a considerable period of time. Here’s what you need to know at FOMC in January.

Economic recovery speed, employment market slowdown… No further mitigation promises

The Fed’s statement released on this day revised the evaluation of “continuously recovering” on the economic recovery and employment situation, as “it has been slow in the last few months.” It is believed that the speed of economic recovery is slowing due to the re-proliferation of the novel coronavirus infection (Corona 19) and the re-proliferation of the mutant virus, and the resumption of some lockdowns (closed). He again emphasized that there is a long way to go for full recovery.

This situational awareness seems to have contributed to maintaining the pace of asset purchases, which is a market concern. The Fed did not issue new guidelines on this day, but emphasized that it will maintain the current level for the time being. Chairman Powell said, “It’s too early to talk about tapering. “We just made guidance (guidelines),” he said. “Before we revise our guidance on buying assets, we said we wanted to see clear progress on our goals.” “It is too early to talk about the (austerity) period, and when it comes to austerity, we will clearly communicate with the public about this,” he explained again, “so no one will be surprised at that point. It also promised quite gradual tightening.

In summary, it is clear that there will be no tightening for a while. Chairman Powell emphasized the maximum employment several times on this day, and he also talked with encouragement that the Fed should achieve this goal.

However, it is still doubtful whether austerity attacks can be avoided when that day comes. Conversely, it is worth noting that there are no firm promises or expressions of easing monetary policy. This is because it can be disappointing for the market.

In particular, on that day, when asked if it could be tightened later, Chairman Powell replied, “There is no reason not to do that.” The question was whether austerity would be possible due to the continued expansion policy, and he said, “After the 2008 financial crisis, we raised interest rates and reduced asset purchases.” Of course, it is premature to discuss this right now, and I put a clue that there is a priority for job recovery now. It’s not for the time being, but the day will come someday. Since it was a FOMC that has not changed, we should always keep the’day’ in mind.

“Inflation is measured in units of one year… There is a long way to reach the price and employment goals”

Inflation, which is a concern of investors, is said to be another high level of inflation. Chairman Powell said, “It is meaningful to mention a few, but first of all, we track inflation every 12 months.” Will”.

He also explained that while economic activity resumed, repressed demand could burst out, but this was temporary and not very large. He said several times, “We will tolerate inflation above 2%.” Even if the inflation rate exceeds 2% this year, they will stand by. This is in line with the maximum employment target, but it can be said that we have reconfirmed that we will not raise interest rates until we are judged that the economy and the job market have risen.

In fact, when Powell explained the role of the Fed on this day, he cited 1. maximum employment, 2. price stability, and 3. financial stability in order. It turns out that the employment index is very important. It was also important to mention that the recovery of the job market is slowing. The day before, Standard & Poor’s (S&P) Ratings chief economist Beth An Bobino said that the Fed’s policy toward inflation and employment-oriented policies with more than 2% of the Fed would not raise interest rates until 2024. Considering this, it seems that the story is not without possibility. Of course, monetary policy changes rapidly as the situation changes.

Chairman Powell’s diagnosis is that this is a global phenomenon, as the inflation rate is lowering in the past decades. This has also been emphasized several times. “We will be pursuing inflation above 2% for a while,” he said.

“There is no big impact on the low-interest asset market bubble… Economic recovery depends on vaccination”

On that day, Chairman Powell also said that the effect of the zero interest rate on the asset market bubble is not significant. “The recent rise in asset prices is not due to monetary policy,” he said. “This is because of expectations for vaccinations and additional stimulus.” He added, “I know that monetary policy also has a certain impact on asset prices,” he added. “The link between low interest rates and asset values ​​may not be as direct as people think. This means that we will keep monetary policy easing for the time being while escaping monetary policy responsibility for the stock and housing market bubble controversy. This means that the impact of zero interest rates on the asset market bubble is less than expected.

In this regard, Chairman Powell avoided answering the question about GameStop, where the stock price is soaring, saying, “It is difficult to talk about a specific company.”

Additionally, on the day, the Fed added a new statement in its statement that the path to economic recovery will depend on vaccination. It means that it is important how long vaccinations take place in order for recovery from the first half to the second half. Chairman Powell also said, “Vaccination is a downside risk (possibly not as expected).”

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/New York = Correspondent Kim Young-pil [email protected]

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