US: FOMC Preview
2023-11-03
■ FOMC has decided to keep policy interest rates unchanged in two consecutive meetings, and there have been no significant fluctuations in the statement and chairman's press conference.
■ At the same time, the market expects interest rate cuts to begin in the first half of next year, and there are still differences in views between the financial markets and the Federal Reserve.
At the meetings of the Federal Reserve Open Market Committee (FOMC) held on October 31st and November 1st, it was decided to maintain the policy interest rate at 5.25-5.50%, which has been the second consecutive decision. Overall, this is in line with market expectations.
Looking back at the situation since the last FOMC meeting in September, according to the " Summary of Economic Projection (SEP)", the median expected policy interest rate of participants shows that by the end of 2023, the policy interest rate is expected to reach 5.625%, with another rate hike. However, since September 27, many senior officials of the Federal Reserve, including the governor of the Minneapolis Federal Reserve Bank (who supported further interest rate hikes before the end of the year), said that "the rise in long-term treasury bonds yields may mean that the Federal Reserve will narrow the rate hike". In addition, Federal Reserve Chairman Powell expressed a similar view on October 19th, which is considered to represent the majority view within the Federal Reserve. Since the FOMC in September, the yield of the US 10-year treasury bonds rose by about 70 basis points to 5.02%.
Although this statement largely continues the content of the September FOMC, it has raised the expansion rate of economic activity from "solid" to "strong" and increased vigilance against the tightening of the "financial environment". In addition, at Chairman Powell's press conference, he reiterated the point made in his speech on October 19th that interest rate cuts were not currently being considered, but the possibility of further rate hikes based on the situation was still preserved. He also said: "At present, it is not evident that the expected increase in policy interest rates is causing a rise in long-term interest rates, which may be driven by term premiums." This indirectly indicates that the current rise in long-term interest rates is led by term premiums.
To sum up, the FOMC meeting showed that: "Since the FOMC in September, the rapid rise in the yield of the US 10-year treasury bonds has had an impact on this decision. However, due to the sustainability of the expansion rate of future economic activities and the uncertainty of the decline caused by whether the yield of treasury bonds will reverse, the possibility of additional interest rate increases cannot be completely ruled out." However, although only one FOMC meeting is left in December, this statement and the chairman's press conference did not explicitly indicate the possibility of a next interest rate hike. This led to a sharp decline in the market's expectation of further interest rate hikes and triggered a wave of stock market gains, a decline in the yield of US treasury bonds, and a devaluation of the US dollar. However, in the short-term financial market, the view that interest rate cuts will begin in the first half of next year contradicts Chairman Powell's view, and there is still a divergence of views between the market and the Federal Reserve, which may continue for an unstable period.
■ At the same time, the market expects interest rate cuts to begin in the first half of next year, and there are still differences in views between the financial markets and the Federal Reserve.
At the meetings of the Federal Reserve Open Market Committee (FOMC) held on October 31st and November 1st, it was decided to maintain the policy interest rate at 5.25-5.50%, which has been the second consecutive decision. Overall, this is in line with market expectations.
Looking back at the situation since the last FOMC meeting in September, according to the " Summary of Economic Projection (SEP)", the median expected policy interest rate of participants shows that by the end of 2023, the policy interest rate is expected to reach 5.625%, with another rate hike. However, since September 27, many senior officials of the Federal Reserve, including the governor of the Minneapolis Federal Reserve Bank (who supported further interest rate hikes before the end of the year), said that "the rise in long-term treasury bonds yields may mean that the Federal Reserve will narrow the rate hike". In addition, Federal Reserve Chairman Powell expressed a similar view on October 19th, which is considered to represent the majority view within the Federal Reserve. Since the FOMC in September, the yield of the US 10-year treasury bonds rose by about 70 basis points to 5.02%.
Although this statement largely continues the content of the September FOMC, it has raised the expansion rate of economic activity from "solid" to "strong" and increased vigilance against the tightening of the "financial environment". In addition, at Chairman Powell's press conference, he reiterated the point made in his speech on October 19th that interest rate cuts were not currently being considered, but the possibility of further rate hikes based on the situation was still preserved. He also said: "At present, it is not evident that the expected increase in policy interest rates is causing a rise in long-term interest rates, which may be driven by term premiums." This indirectly indicates that the current rise in long-term interest rates is led by term premiums.
To sum up, the FOMC meeting showed that: "Since the FOMC in September, the rapid rise in the yield of the US 10-year treasury bonds has had an impact on this decision. However, due to the sustainability of the expansion rate of future economic activities and the uncertainty of the decline caused by whether the yield of treasury bonds will reverse, the possibility of additional interest rate increases cannot be completely ruled out." However, although only one FOMC meeting is left in December, this statement and the chairman's press conference did not explicitly indicate the possibility of a next interest rate hike. This led to a sharp decline in the market's expectation of further interest rate hikes and triggered a wave of stock market gains, a decline in the yield of US treasury bonds, and a devaluation of the US dollar. However, in the short-term financial market, the view that interest rate cuts will begin in the first half of next year contradicts Chairman Powell's view, and there is still a divergence of views between the market and the Federal Reserve, which may continue for an unstable period.