■ In addition to economic indicators related to the labor market and prices, attention should also be paid to the degree of stress in the financial system
■ Maintain US policy interest rate forecasts, but may change based on inflation and financial instability
The Federal Reserve Board (FRB) held a meeting of the Federal Open Market Committee (FOMC) on the 21st and 22nd and decided to raise interest rates by 25 basis points. FRB Chairman Jerome Powell stated that the bankruptcy of regional banks in the United States is a problem for individual banks, emphasizing the soundness of the financial system, and evaluating that the measures taken by the authorities to curb financial instability are having some effect. He also stated that while considering not raising interest rates, he decided to continue raising interest rates because economic indicators related to the labor market and prices were stronger than expected. In addition, the economic and monetary policy outlook of FOMC members has also been updated, with the data at the end of 2024 slightly increased compared to the data in March (5.25%, 4.25%, 3.25%). However, this seems to be the result of members slightly revising their forecasts to cope with persistent inflationary pressures and is therefore unlikely to be of significant significance.
In the statement, the wording on interest rate hikes was changed from "need to continue raising interest rates" to "some additional tightening is appropriate.". Federal Reserve Chairman Powell pointed out that the pressure on the financial system has brought pressure on the credit environment of households and businesses, which has the same or greater effect on easing the tightening labor market conditions and inflationary pressures as raising interest rates. Emphasizing the need to assess its impact, if the pressure on the financial system intensifies, it means that further interest rate hikes become unnecessary, the expectation of interest rate hikes may recede, and the prospect of high-interest rates will be deprived
Based on the information obtained from this FOMC meeting, the policy interest rate expectation is maintained. In May, FOMC raised interest rates by 25 basis points, reaching the final target of 5.25% of the policy interest rate (terminal interest rate). It is expected that the interest rate will remain at the same level for the rest of this year, and the interest rate reduction will begin in the quarter from January to March next year. However, in addition to economic indicators related to the labor market and prices, it is also necessary to further understand the degree of pressure on the financial system through inter-bank transaction interest rates and bank loan conditions, which can lead to changes in policy interest forecasts.
In addition, the trend of the US government toward financial insecurity is also worth paying attention to. On the 21st, US Treasury Secretary Yellen hinted that if the financial crisis further expands in the future, it is possible to expand temporary measures such as full deposit protection. It clarifies the government's attitude of preventing the outflow of deposits even if it is willing to bear moral hazard. But he said at a Senate hearing on the 22nd that he would not consider raising the deposit insurance limit. Expectations for additional measures to protect depositors have receded, and concerns about the financial system have not yet been resolved.
