“The Fed took the first step to tighten”… Prospects for an interest rate hike next year will also increase [김영필의 3분 월스트리트]

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On the 22nd (local time), the US stock market showed an uptrend as the 10-year Treasury bond rate fell to 1.68% per year. In particular, the NASDAQ rose 1.2%.

On Wall Street, government bond yields will show volatility for the time being, but there are many opinions that it will eventually go upward. Jim Bianco also said, “The 10-year Treasury yield can go down to 1.5% in the spring, but it can rise to 2.5% within a year.”

After all, the economy is booming and inflation concerns continue. There is growing uncertainty about how the Federal Reserve (Fed) will emerge in the future.

However, contrary to market expectations, it became clear that the Fed did not care about Treasury yields, as it can be seen from the decision to stop extending the supplementary leverage ratio (SLR) easing measures. There is no big change since it’s Monday, but let’s take a quick look at the market atmosphere.

Bob Michelle, Chief Investment Officer of JPMorgan Investments Management, told Bloomberg TV today that “The Fed’s failure to extend SLR measures is the first step toward tightening easing monetary policy.”

Once again, I thought that Wall Street could extend the deregulation of SLR-related issues. Of course, the fact that SLR directly affects Treasury yields is small, but it can be helpful in a psychological level. The financial sector claimed that if SLR measures were extended, banks could hold more government bonds.

CIO Michelle looked at the opposite. It means that it ended because there wasn’t a big impact. However, he also agrees that the end action itself is the first step in tightening. This is because SLR had a symbolic meaning as I told you in’Three Minute Wall Street’.

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This made it clear that the Fed would leave Treasury bond yields as long as there were no market confusion. This seems to be behind the Fed’s expectation that inflation will eventually be temporary.

In other words, △A reasonable level of interest rate hike is a sign of economic recovery, △As inflation is temporary, interest rates rise temporarily due to inflation expectations △There is no reason to take additional mitigating measures in a situation where the economy is improving.

If it remains like this, it would be correct to see that the possibility of an operation twist that expands the share of long-term bond purchases will decrease. Of course, if there is excessive confusion in the bonds and financial markets, you can always bring them out, but you can try to save them as much as possible.

As such, the prospect of the market’s tightening point is getting more and more advanced. It is necessary to take a closer look at the survey results of the National Real Economy Association (NABE) that came out the day before.

NABE is a survey of 205 economists, with 46% of the prospects that the Fed will raise interest rates this year. Next year (2023) followed by 28%, followed by only 12% after 2023, as the Fed predicted. The second half of this year was also 12%.

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The important thing is that the forecast that interest rates will rise by the second half of this year or next year is more than half, at 58%. It means that the market’s perception is that. 12% of people believe the Fed’s story, and about one in ten.

Of course, interest rates don’t go up right away. 72% of respondents said their current monetary policy is appropriate. The prospect of an interest rate hike should also be early in the second half of this year.

In addition, when asked if inflation concerns were at the highest level in the past 20 years, 61% said yes and 37% said no. As expected, the outlook for the market is that inflation may be greater than expected, which could lead to faster rate hikes and tightening. In this regard, the New York Times (NYT) said the Biden government would split the $3 trillion infrastructure bill into two areas. Additional money-making continues.

What’s important is that expectations of austerity and inflation are growing. The Fed is emphasizing that it has a means to respond to inflation. If the Fed’s predictions are wrong and inflation gets worse than expected, it will eventually lead to a rate hike.

Richmond Fed President Thomas Barkin told Bloomberg TV that day, “The US economy will be very strong in the spring and summer.” This suggests that there will be no additional easing policies and that there may be more opinions on monetary tightening.

More specifics will be revealed at the Congressional Hearing of Fed President Jerome Powell from the 23rd to the 24th. Depending on what Chairman Powell said, the mayor will sway once again. Powell’s intentions are important, but how the market reacts is more important.

The situation is changing day by day, as revealed by a sudden SLR-related decision. That means the economic conditions are changing rapidly. As volatility and uncertainty in the market inevitably increase, we need to be more cautious about forecasting and forecasting. On the 23rd, I will revisit Chairman Powell’s remarks in’Three Minute Wall Street’.

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

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