FOMC can’t relax until September
2022-09-15
■ Fed officials support aggressive rate hikes, FOMC rate hike not specified in September
■ Shortly, the topic of "terminal rates" is likely to be a major factor affecting US financial markets.
The Federal Reserve Board (FRB) entered a “lockdown period” starting on September 10, ahead of the September 20-21 Federal Open Market Committee (FOMC) meeting. During this period, senior officials avoided making statements related to monetary policy. Even after the Aug. 25-27 Jackson Hole meeting, 13 FRB executives and regional Fed chairs, including FRB Chairman Jerome Powell, spoke broadly in favor of continuing a stance on aggressive rate hikes. The main points are (1) dual mandate (price and employment stability), (2) the extent of the September FOMC rate hike, and (3) the final rate (the final point of the rate hike).
Under the dual mandate (price and employment stabilization), the Fed generally believes that while the labor market is achieving its goals, inflation is too high. Additionally, the Fed expects the US economy to slow significantly if the current monetary tightening stance continues. But some pointed to the 5% unemployment rate as a possible turning point in the Fed's stance on raising rates. Considering August's unemployment rate (3.7%), the Fed's stance of prioritizing the price response isn't wrong. In this case, the consumer price index (CPI) released on September 13 rose 0.6% month-on-month, especially the core index excluding food and energy. Cautiousness over stronger prices has grown further, leading to speculation that the Federal Reserve will raise interest rates sharply.
The FOMC rate hike in September has fully taken into account the 75 basis points of the US CPI rate hike in August, and some markets even speculated that a 100 basis point rate hike is imminent. The final decision will have to wait for the September University of Michigan consumer survey released on September 16. But depending on the outcome, as was the case in June, the market is likely to confirm the magnitude of the rate hike through reports from major US media outlets. The market's awareness of the "blockade period" has weakened compared with the past, and the time to relax will continue until the FOMC in September.
The final rate (the final point of interest rate hikes) is a factor that influences the overall direction of U.S. financial markets. In fact, following the US CPI results in August, the short-term money market on September 13 expected a rate hike of around 4.3% next year. So far, senior FRB officials have said the outlook for the terminal rate ranges from a high 3% range to a low 4% range. Short-term currency markets are showing the most positive outlook at the time of writing. There are also greater risks to the market, according to the FOMC's September update of the Summary of the Economic Outlook (SEP).