The Federal Reserve is cautious about credit tightening
2023-04-14
■The US CPI in March hinted at a weakening and sustained inflationary pressure
■The Federal Reserve is becoming more vigilant about economic downside risks due to credit tightening
The Consumer Price Index (CPI) for March released yesterday (5.0% year-on-year and 0.1% month-on-month) was lower than market expectations (5.2% and 0.2% respectively). From the perspective of contribution to year-on-year growth, food (1.28% → 1.15%) decreased, energy (0.36% → -0.45%) contributed to the decrease, and the contribution of commodities (0.22% → 0.33%) expanded. In addition, the contribution of the service industry (4.22% → 4.15%) continued to grow from September 2021 to February this year but turned into a contraction in March. Therefore, the rising rate of the core index excluding food and energy (5.6% year-on-year, 0.4% month-on-month) is in line with market expectations. The growth of the service industry is supported by housing-related costs, which account for 34.4% of the overall CPI in 2023. Although the contribution of housing-related expenses increased to 2.81% compared to the previous month (2.79%), the pace of expansion has slowed down, indicating the possibility of further slowing down the overall CPI growth. However, after deducting expenses related to food, energy, and housing, the CPI increased by 0.3% month-on-month, which is faster than the previous month (up 0.2% month-on-month), and inflationary pressure continues to exist.
In addition, the minutes of the Federal Open Market Committee (FOMC) meeting released yesterday (March 21-22) unanimously decided to raise interest rates by 25bps and revealed that they were considering suspending the rate hike, indicating a lack of confidence in further rate hikes in May. In addition, it is said that the credit squeeze poses significant uncertainty to the economic outlook. While emphasizing the continued vigilance against economic downturns, it is emphasized that ensuring flexibility and options is an important policy decision.
Affected by this, the FF interest rate target upper limit will be raised by 25bps in May, and it is deemed unnecessary to modify the previous view that it will remain unchanged at 5.25% temporarily. However, as pointed out in the minutes of the FOMC meeting, the degree of credit tightening is the key to determining the direction of policies, so financial institutions, especially regional banks, will be closely monitored in their financial reports from tomorrow onwards. We hope to confirm whether we are preparing for an increase in credit risk by observing the accumulation rate of doubtful account reserves and changes in loan positions.