Sep

The U.S. Federal Reserve (Fed) announced on Wednesday (13th) that it would keep its benchmark interest rate unchanged at a range of 5.25% to 5.5% and sent the clearest signal so far that a series of interest rate cuts will be carried out next year. The aggressive rate hikes to come may be over.

Excerpts from the Fed’s latest interest rate statement and Powell’s press conference are as follows: Fed Chairman Jerome Powell (Photo: REUTERS/TPG)

Key Point 1: Cut interest rates at least three times next year

At this meeting, Fed officials unanimously agreed to maintain the federal funds rate at the target range of 5.25% to 5.5%, the highest level since 2001. The dot plot shows that this time policymakers have maintained the target range since March 2021. For the first time, it forecasts no further interest rate hikes.

Judging from the dot plot, most Fed officials predict that interest rates will be cut by at least 75 basis points (3 yards) in 2024, which is higher than the forecast given in September. Although the median estimate of the federal funds rate at the end of 2024 is 4.6%, expectations among officials still vary widely, with eight officials predicting a rate cut of less than 3% next year and five expecting a rate cut of more than 3%. code.

(Photo: Fed official website)

Nonetheless, Ball stressed that these forecasts were not a predetermined plan and that while further interest rate hikes were unlikely, policymakers were not yet ready to rule out the option of further hikes in order to quell renewed price pressures if needed.

“There is widespread agreement that policy rates may have reached, or are very close to, the peak of this tightening cycle. I think it is unlikely that we will raise rates again, but we would not rule it out,” Ball said.

The statement after the meeting also highlighted the change in the Fed’s tone. Officials said they would continue to monitor a range of data and developments to see whether “any additional” tightening was appropriate, a term that did not appear in the FOMC’s November statement.

FOMC members acknowledged that inflation has eased over the past year but remains at a high level. In addition, most members now believe that risks to price growth have broadly balanced.

Focus 2: Increase this year’s economic growth and lower the inflation forecast to 2026

The latest Summary of Economic Projections (SEP) shows that the U.S. real gross domestic product (GDP) growth rate this year is estimated to be 2.6%, higher than the 2.1% forecast in September, and the unemployment rate remains unchanged at 3.8%.

In terms of inflation, the personal consumption expenditures price index (PCE) growth rate this year is estimated to be 2.8%, lower than the previously forecast 3.3%, and the core PCE growth rate has also been revised down to 3.2% from the previous 3.7%.

Looking forward to 2024, the real GDP growth rate is estimated to be 1.4%, slightly lower than the 1.5% forecast in September. The unemployment rate is estimated to be 4.1%, which is the same as the previous forecast. PCE and core PCE growth estimates are both 2.4%, both low. than previously expected.

(Photo: Fed official website)

Point 3: Cut interest rates without waiting for a recession

After the meeting, Powell warned that even if the U.S. economy performs strongly this year, the possibility of recession still exists. “The idea that the economy is in recession right now is unfounded, but the possibility of a recession next year is always there. It’s a matter of probability, it’s always a possibility, no matter what the economic situation is,” he said.

However, Ball also said that even if the U.S. economy does not fall into recession in 2024, the Fed is willing to cut interest rates. “This could just be a sign that the economy is normalizing and does not need to tighten policy,” he said.

The timing of interest rate cuts is the next question

Ball pointed out that the battle against inflation is not over yet, but with both inflation and the labor market showing signs of cooling, policymakers will begin to discuss easing policies.

“The question of when is the appropriate time to start easing policy is starting to emerge, and that’s obviously a discussion around the world and one that we’re talking about today,” he said. “I think there’s a general expectation that that’s going to be Become a topic of our future discussions.”

Point 4: The labor market has finally entered the “sweet spot”

“Overall, the labor market is going very positive,” Ball said. “It’s a good time for workers to find a job and get steady wage growth.”

Ball said job growth remains strong, but is falling back to more sustainable levels given population growth and the labor force participation rate. “The era of severe labor shortages is over. Wage growth has remained above the 2% target for a long time, but it has gradually cooled.”

Market Reaction

After the news was announced, the rally in U.S. stocks further expanded.Dow Jones IndexIt closed up 512 points, reaching the 37,000 mark for the first time. The S&P 500 andthat fingerBoth closed in the red by more than 1.3%, and the S&P returned to the 4,700-point level.half feeIt closed up nearly 1.6%, the highest since January last year. The 10-year U.S. Treasury yield fell to 4.03%.dollar indexfell to a two-week low.

Wall Street view

Global X Chief Investment Officer Jon Maier said signs that the Fed is about to cut interest rates reflect that the U.S. economy is in a better position in terms of the central bank’s goals. “The market is celebrating the fact that the Fed’s policies are more in line with the market, not just for the Fed’s decision to stay on hold, but also seems to be praising the economic performance that is consistent with the Fed’s long-term goals.”

Whitney Watson, global co-head of fixed income and liquidity solutions at Goldman Sachs Asset Management, believes that the Fed’s interest rate cutting cycle may begin in June, when it will cut interest rates by 25 basis points. By the end of next year, the policy interest rate will reach the target range of 4.25% to 4.5%. .

Eric Winograd, senior economist at AllianceBernstein Asset Management, said: “While I think the market reaction is over-exaggerated, it is in the right direction. For the first time in this cycle, the Fed has opened the door to cutting interest rates within a reasonable forecast range, which is significant. major.”

Greg Bassuk, CEO of AXS Investments, said: “The Fed is sending holiday gifts early this year. Investors are accepting the Fed’s more dovish shift in sentiment. We believe the factors driving the change in sentiment include this week’s Consumer Price Index (CPI) and producer prices. Index (PPI), both are moving in line with the downward trajectory of inflation, which makes the Fed feel more confident that its hawkish actions are starting to achieve its goals.”

2023-12-13 23:29:15
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