US: FOMC Preview

■   Interest in U.S. economic indicators and FOMC officials' remarks is expected to increase more than ever

  U.S. economic indicators released last week once again reinforced expectations that the U.S. Federal Reserve Board (FRB) will continue to raise interest rates significantly.   The personal consumption expenditures (PCE) deflator rose 0.5% in September, the same rate as the previous month, and 5.1% year-over-year, accelerating from the previous month's growth rate (4.9%) ). In addition, the U.S. Employment Cost Index rose 1.2% in the third quarter from a year earlier, in line with market expectations, and rose 5.0% year over year.  The index reflects trends in labor costs, such as wages and benefits, with wages and salaries up 1.2 percent from the previous quarter (up 1.6 percent), but remaining high. Despite signs of easing supply and demand tightening in the labor market, upward pressure on wages persists, which has been interpreted as heightening concerns about price increases in the medium to long term.  So far, the Fed has taken a "data-dependent" stance on the pace of future rate hikes. While there are signs of moderation in housing and other markets, it is difficult to find clues to slow the pace of rate hikes in the current labor market and price trend data.

  In this context, the U.S. Federal Open Market Committee (FOMC) is expected to raise interest rates by 75 basis points this week at the FOMC meeting on November 1-2. The announcement of information on future rate hikes is likely to reaffirm the previous policy of giving top priority to controlling inflation and managing policy flexibly based on future data. If FRB Chairman Jerome Powell (Jerome Powell) makes a statement on the slowing pace of interest rate hikes, U.S. financial markets will react with lower long-term interest rates and higher stock prices.However, the resulting easing of the financial environment and the activation of consumption by the wealth effect may eventually become a factor in keeping inflation at a high level. Fed Chairman Jerome Powell has previously dismissed the link between financial markets and the real economy as undesirable and is unlikely to make such a statement. On the other hand, before the FOMC meeting on December 13 and 14, a number of economic indicators will also be published, so it is difficult to imagine carrying out further strengthening of the exchange of ongoing observations of significant rate increases and reducing the freedom of decision-making. Although price action in financial markets will be limited after this meeting, markets are more interested than ever in U.S. economic indicators and comments from key Fed officials to understand the pace of future rate hikes and will react to these.