FOMC meeting key point the necessity of continuing to tighten monetary policy
2023-01-06
■ The purpose of FOMC meeting minutes is to confirm whether participants support continued tightening of monetary policy
■ The financial market showed caution when considering the interest rate reduction factors, and the information of continued tightening may continue to spread
The contents of the Federal Open Market Committee (FOMC) meeting held on December 13 and 14 last year were announced on December 4. At the meeting, it was decided to raise the price by 0.50%, which is smaller than the 0.75% increase for four consecutive times. In the Economic Outlook Summary (SEP) released at the same time, FOMC participants' policy interest rate outlook has been raised since September, while the real GDP growth rate has been lowered, and the unemployment rate and inflation rate have been raised. On the one hand, considering that the effect of economic repression will be enhanced, on the other hand, the attitude of long-term sustained financial tightening has been further strengthened. The theme of the meeting clarified the following points.
(1) All participants predicted that the policy interest rate in September would rise, and did not believe that the interest rate would be lowered in 2023. In addition, participants agreed that it is necessary to continue to adopt repressive economic policies until they have greater confidence in the sustainable inflation control path, so as to reach the target level.
(2) Due to the misjudgement of the market on the monetary policy, if the situation of the financial environment is contrary to the policy intention is eased, it will hinder the policy effect of price stability, so we should be more vigilant.
(3) After discussing the impact of not tightening monetary policy and over tightening monetary policy, participants generally recognized that in the case of insufficient monetary tightening, the rising space of inflation prospect is still an important factor in policy decisions. Based on this understanding, we believe that it is appropriate to maintain the policy of restraining economic growth.
The financial market will start to cut interest rates in the second half of 2023, and the market interest rates has started to decline since November last year. FOMC also raised a warning similar to (2), as long as the current policy expectation has been formed, it is hard to assume that it will give guidance on policy changes in advance to promote the participation of financial markets and reduce market interest rates. According to (3), the current policy stance of continuing to tighten the currency monetary tightening is likely to be maintained as long as the economyy continues to perform in line with the outlook and no faster-than-anticipated slowdown in the economy and inflation is observed in the future. At the FOMC statement and the press conference of Federal Reserve Board (FRB) President Powell, state that there was no hint of the end time of interest rate hikes and policy change, and no new information about these was found in the FOMC meeting minutes. However, the deviation from the understanding of the financial market cannot be remedied, and the exchange of ideas for continuing to tighten the policy will continue.