United States: Calculation of Additional Interest Rates
2023-06-16
■ The advance and growth rate of credit contraction is not significant, and it is necessary to further increase interest rates on an economic basis.
■ The attitude of determining whether interest rates need to be raised at each FOMC meeting is once again displayed.
The Federal Reserve Board (Federal Reserve) held the Federal Open Market Committee (FOMC) on the 13th and 14th and decided to keep the policy interest rate unchanged. The statement stated that the content of the last May meeting remained roughly unchanged, and that "when deciding on the extent to which additional policies are appropriate to bring inflation down to 2% in the long term, the cumulative effects and time differences of monetary tightening, as well as the economic and financial situation, will be taken into account." The economic outlook of FOMC members (SEP, median), the GDP growth rate in 2023 (0.4% → 1.0%), and the deflator index of core personal consumption expenditure (PCE) excluding food and energy (3.6% → 3.9%) will be revised above, the unemployment rate (4.5% → 4.1%) has been lowered. In addition, the FF interest rate (guiding target upper limit, the same below) was revised upwards at the end of 2023 (5.25% → 5.75%), resulting in an increase in both 2024 (4.25% → 4.75%) and 2025 (3.25% → 3.50%). Although the growth rate of early and credit contraction has not been significantly affected by financial turmoil, attention has been paid to the fact that the economic deterioration has not progressed to the expected level, and it is considered a necessary step toward monetary tightening.
Federal Reserve Chairman Powell stated at a press conference that he recognizes that policy interest rates are already quite close to equilibrium levels. In addition, he also stated that the economic conditions required for a decline in inflation are being met, and the overheating of the US economy and labor market is being eliminated. On this basis, it is emphasized that the economic outlook is not a decisive matter or plan, once again indicating the attitude of judging whether the FOMC meeting needs to raise interest rates. The price Nowcasting index released by the Cleveland Federal Reserve in the United States (as of the 14th) shows that the core PCE deflator is expected to increase by 4.70% year-on-year in May and 4.44% in June. If such a slowdown is maintained, it will proceed according to the FOMC's vision, and the FF interest rate will also increase to 5.75% along the SEP.
It is worth mentioning that Federal Reserve Chairman Powell stated that this rate hike should not be referred to as a skip. The market assumes that every meeting will raise interest rates, which seems to have the freedom to ensure the speed and frequency of future interest rate hikes. If the FOMC attempts to increase interest rates this time, the FOMC on July 25th, 26th, October 31st, and November 1st will carry out 25bps additional interest rate hikes.
■ The attitude of determining whether interest rates need to be raised at each FOMC meeting is once again displayed.
The Federal Reserve Board (Federal Reserve) held the Federal Open Market Committee (FOMC) on the 13th and 14th and decided to keep the policy interest rate unchanged. The statement stated that the content of the last May meeting remained roughly unchanged, and that "when deciding on the extent to which additional policies are appropriate to bring inflation down to 2% in the long term, the cumulative effects and time differences of monetary tightening, as well as the economic and financial situation, will be taken into account." The economic outlook of FOMC members (SEP, median), the GDP growth rate in 2023 (0.4% → 1.0%), and the deflator index of core personal consumption expenditure (PCE) excluding food and energy (3.6% → 3.9%) will be revised above, the unemployment rate (4.5% → 4.1%) has been lowered. In addition, the FF interest rate (guiding target upper limit, the same below) was revised upwards at the end of 2023 (5.25% → 5.75%), resulting in an increase in both 2024 (4.25% → 4.75%) and 2025 (3.25% → 3.50%). Although the growth rate of early and credit contraction has not been significantly affected by financial turmoil, attention has been paid to the fact that the economic deterioration has not progressed to the expected level, and it is considered a necessary step toward monetary tightening.
Federal Reserve Chairman Powell stated at a press conference that he recognizes that policy interest rates are already quite close to equilibrium levels. In addition, he also stated that the economic conditions required for a decline in inflation are being met, and the overheating of the US economy and labor market is being eliminated. On this basis, it is emphasized that the economic outlook is not a decisive matter or plan, once again indicating the attitude of judging whether the FOMC meeting needs to raise interest rates. The price Nowcasting index released by the Cleveland Federal Reserve in the United States (as of the 14th) shows that the core PCE deflator is expected to increase by 4.70% year-on-year in May and 4.44% in June. If such a slowdown is maintained, it will proceed according to the FOMC's vision, and the FF interest rate will also increase to 5.75% along the SEP.
It is worth mentioning that Federal Reserve Chairman Powell stated that this rate hike should not be referred to as a skip. The market assumes that every meeting will raise interest rates, which seems to have the freedom to ensure the speed and frequency of future interest rate hikes. If the FOMC attempts to increase interest rates this time, the FOMC on July 25th, 26th, October 31st, and November 1st will carry out 25bps additional interest rate hikes.