United States: FOMC review
2024-02-02
■ In the statement, the direction of policy adjustment tends to be neutral, clarifying the position of not being in a hurry to cut interest rates
■ The Chairman pointed out that although progress has been made in curbing inflation, the inflation level is still above the target and victory cannot be declared
The Federal Reserve held a meeting of the Federal Open Market Committee (FOMC) from January 30 to 31 and decided to maintain the federal funds rate guidance target at 5.25-5.50%. The statement pointed out that economic activity is expanding at a strong pace, and the current economic perception has been raised while maintaining the view that although inflation has eased, it is still high. In addition, the wording indicating the possibility of additional interest rate hikes has been removed, and it has been stated that the risks to achieving employment and inflation targets are becoming more balanced, neutralizing the direction of future policy adjustments. Then it is explicitly pointed out that it is inappropriate not to lower interest rates until confidence in achieving inflation targets is strengthened.
The Chairman of the Federal Reserve, Powell, stated at a press conference that he believes policy interest rates have reached their peak, and if the economy continues to develop as expected, a rate cut within the year is appropriate. However, he stated that the likelihood of starting interest rate cuts before March is low, indicating that he is not in a hurry to do so. Given this, the expected start of interest rate cuts in the market was temporarily postponed to June. In addition, Chairman Powell stated that although in the past it was generally believed that curbing inflation required slowing economic growth, he was not concerned about the current high economic growth rate and revised this view. Then, he stated that despite the smooth progress of the economic soft landing, inflation is still above the target level, so victory cannot be announced yet. When considering the timing of interest rate cuts, he mentioned confidence in achieving inflation targets and concern about unexpected weakness in the labor market, maintaining a dual focus on prices and employment. We believe that interest rate cuts will be implemented starting from the second quarter, followed by a slow quarterly pace.
It is worth noting that in the market, people are also paying attention to whether the Federal Reserve will release information on balance sheet tightening (quantitative tightening, QT), but the wording in the statement remains unchanged. The Chairman of the Federal Reserve, Powell, stated that he will begin in-depth discussions at the next FOMC meeting in March. In addition, he believes that policy interest rates and balance sheets are independent tools, and stated that although it is not planned to simultaneously lower interest rates and QT, this is possible. At the FOMC meeting in March, we look forward to following up on discussions related to QT and updates on the Summary of Economic Projection (SEP).
■ The Chairman pointed out that although progress has been made in curbing inflation, the inflation level is still above the target and victory cannot be declared
The Federal Reserve held a meeting of the Federal Open Market Committee (FOMC) from January 30 to 31 and decided to maintain the federal funds rate guidance target at 5.25-5.50%. The statement pointed out that economic activity is expanding at a strong pace, and the current economic perception has been raised while maintaining the view that although inflation has eased, it is still high. In addition, the wording indicating the possibility of additional interest rate hikes has been removed, and it has been stated that the risks to achieving employment and inflation targets are becoming more balanced, neutralizing the direction of future policy adjustments. Then it is explicitly pointed out that it is inappropriate not to lower interest rates until confidence in achieving inflation targets is strengthened.
The Chairman of the Federal Reserve, Powell, stated at a press conference that he believes policy interest rates have reached their peak, and if the economy continues to develop as expected, a rate cut within the year is appropriate. However, he stated that the likelihood of starting interest rate cuts before March is low, indicating that he is not in a hurry to do so. Given this, the expected start of interest rate cuts in the market was temporarily postponed to June. In addition, Chairman Powell stated that although in the past it was generally believed that curbing inflation required slowing economic growth, he was not concerned about the current high economic growth rate and revised this view. Then, he stated that despite the smooth progress of the economic soft landing, inflation is still above the target level, so victory cannot be announced yet. When considering the timing of interest rate cuts, he mentioned confidence in achieving inflation targets and concern about unexpected weakness in the labor market, maintaining a dual focus on prices and employment. We believe that interest rate cuts will be implemented starting from the second quarter, followed by a slow quarterly pace.
It is worth noting that in the market, people are also paying attention to whether the Federal Reserve will release information on balance sheet tightening (quantitative tightening, QT), but the wording in the statement remains unchanged. The Chairman of the Federal Reserve, Powell, stated that he will begin in-depth discussions at the next FOMC meeting in March. In addition, he believes that policy interest rates and balance sheets are independent tools, and stated that although it is not planned to simultaneously lower interest rates and QT, this is possible. At the FOMC meeting in March, we look forward to following up on discussions related to QT and updates on the Summary of Economic Projection (SEP).