Jerome Powell, chairman of the Federal Reserve System (Fed), speaks at a press conference immediately after the regular meeting of the Federal Open Market Committee (FOMC) on the 17th (local time). YouTube capture
Jerome Powell, chairman of the Federal Reserve System (Fed), re-emphasized the existing position to maintain the current’zero (0) interest rate’ level until 2023. The prediction that the’economy will improve’ alone will not change monetary policy.
However, despite Chairman Powell’s resolute appearance, doubts about changes in monetary policy underlying the market have not been completely resolved.
Inside the Fed, opinions are gradually increasing that the timing of the rate hike may be faster than expected. In the investment banking (IB) industry, tapering (reducing asset purchases) will begin this year, and there is also a prospect that interest rates may increase early next year.
Powell “Zero interest rates will be maintained until 2023… Interest rates should be adjusted until actual numbers show improvement”
On the 17th (local time), the Fed issued a statement after the regular meeting of the Federal Open Market Committee (FOMC) and announced that it would freeze the current interest rate to 0.00~0.25%. It also decided to maintain the $120 billion monthly bond purchase program.
The reason why the FOMC meeting was focused on this day was because the US Treasury bond rate soared to the level of a seizure, raising concerns about inflation. In mid-January, the 10-year Treasury bond yield, which was around 1.1%, is rising and falling around 1.6%. This is why the prospect of the Fed may change its monetary policy stance in response to inflationary pressures.
However, Chairman Powell firmly emphasized that there was no change in the existing position.
“The labor market hasn’t improved, and inflation may be temporary, but it will soon fade,” he said. Unless employment and inflation are sufficiently recovered and appear as numbers for a long period of time, it means that it is premature to discuss the tapering as well as the interest rate hike.
However, the Fed has clearly admitted that the US economy is improving. The Fed initially raised the U.S. economic growth rate this year from 4.2% to 6.5%, and predicted that the unemployment rate would also fall from 5% to 4.5%.
“The interest rate hike will begin next year” Minority 1 → 4… Still anxiety
The dot plot (left) released by the Federal Open Market Committee (FOMC) last December, and the dot plot released by the FOMC this time. The number of committee members who expected an interest rate increase in 2022 increased from 1 to 4, and in 2023 from 5 to 7. FOMC homepage capture
The mayor was relieved and sighed at the Fed’s dove-like remarks. The US stock market reached an all-time high after Powell’s remarks, and the US Treasury bond rate also decreased or turned downward.
However, from a long-term perspective, the market’s doubts have not completely disappeared. First of all, subtle changes in airflow are detected even within the Fed.
According to a “dot plot,” an interest rate forecast displayed anonymously by 18 FOMC members, there was only one member in December of last year that an interest rate hike will be carried out in 2022. But this time it increased to 4 people. The number of commissioners who expected to raise interest rates within 2023 also increased from five to seven.
The lack of a separate countermeasure against the increase in government bond yields also raised market skepticism.
Markets buy long-term Treasury bonds and sell short-term Treasury bonds to stabilize long-term interest rates, even if they do not raise or taper the base rate, or supplement that prevents the need for banks to forcibly sell Treasury bonds to meet equity capital regulations. I expected action to come. However, Chairman Powell avoided immediate answers to questions about these measures.
Although major investment banks admitted that the Fed has shown a clear dove-like appearance, they have not expected changes in monetary policy to come faster than expected.
Citigroup predicted that the Fed will start tapering in the fourth quarter of this year and raise interest rates by the end of next year. Goldman Sachs also predicts that taper will begin in early 2022.
Kwak Joo-hyun reporter [email protected]
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