Global Spotlight fed FOMC meeting! Bloomberg interview economist: Powell will adjust the rhetoric of inflation to emphasize not presetting a course

fx168 Financial Newspaper (Hong Kong) News The Federal Reserve will announce the latest monetary policy in the early morning of Beijing time on Thursday, and at a time when inflation concerns are intensifying, the Federal Reserve will almost certainly announce the reduction of bond purchases, withdrawing from quantitative easing (QE), and the market is more concerned about the inflation wording in the statement, looking for signals of the timing of interest rate hikes. Economists interviewed by Bloomberg said Powell would adjust the rhetoric of inflation and exit the market in the near future to emphasize not presetting the line.

More than half of the economists polled by Bloomberg predicted that the Fed would begin to scale back on its purchases in November and end by June 2022. The Fed currently buys $120 billion a month in bonds, and could reduce its purchases of Treasuries by $10 billion and purchases of mortgage-backed securities (MBS) by $5 billion each month after initiating a balance sheet reduction.

Economists' forecasts for the timing of the first post-COVID-19 rate hike are divergent, with about half in 2022 and early 2023, and slightly more in early 2023. In addition, interest rates could climb to 1.75% by the end of 2024, 1 yard above the level surveyed in September (25 basis points). Interest rate markets are betting more aggressively, arguing that they will raise interest rates in June next year, at least once or twice before the end of the year.

Hugh Johnson, chief economist at graypoint, looked ahead to the fed's possible adjustment of inflation rhetoric, reiterating that high inflation is a temporary phenomenon caused by supply chain problems on the one hand, but adding that inflation is longer in duration or that some non-temporary factors have emerged.

"For example, the Fed may say that 'the high annual rate of inflation is a temporary phenomenon, but it may not fall back to the level previously predicted by 2022,' Hugh said. Still, the Fed is almost certain to reserve in its statement that 'there will be no rate hikes until the labor market reaches its full employment target'. ”

Economist Anna Wong predicts that the Fed may not set a course in advance on the timetable and pace of balance sheet reduction, and if inflation is more difficult and the full employment target is achieved early, the Fed still has some room for flexibility.

Bank of America offered the view that the liquidity challenge for U.S. Treasuries would spill over into the stock market. Banks have been simulating in recent weeks to ensure that trading systems can handle volatility peaks similar to those seen in the taper tantrum of 2013. Most in the banking industry believe that the exit panic in 2013 will not be repeated, but as U.S. stocks rise to record highs, some Wall Street investment banks have begun to warn that the surge in U.S. stocks may not be sustainable.

Bank of America said earlier this week that the situation of equity-debt divergence is unlikely to persist and that the Treasury market faces liquidity challenges that could spill over to other markets. U.S. Treasury yields plummeted on Tuesday, the yield curve steepened and Bank of America Merrill Lynch Treasury Options volatility surged to an 18-month high, suggesting investors were concerned about the immediate risks posed by the Fed's policy on Wednesday.

This means that Powell will have to juxtapose his wording. Bill English, a professor at the Yale House of Management who served as a Fed official, said: "The market has roughly digested the relatively rapid balance sheet reduction and interest rate hike in the second half of next year, so I don't think the problem is obvious." It would be helpful if Bauer added that the environment remains uncertain and that the Fed will not be tied down by anything and will adjust to changes in the outlook. ”

U.S. safe-haven fund tycoon Bill Ackman called on October 28 that the Fed should immediately begin tightening monetary policy and raising interest rates as soon as possible. After meeting with fed officials at its New York branch, Ekman tweeted Friday: "Most importantly, we believe the Fed should immediately scale back its taper and start raising interest rates as soon as possible." Keep dancing while playing the music, now it's time to turn off the music and settle down. ”

Recalling the September interest rate policy meeting, the Fed announced that the Federal Open Market Meeting (FOMC) would keep the benchmark rate in the range of 0% to 0.25% and maintain the pace of bond purchases of $120 billion per month, but hinted that the November interest rate meeting would begin to shrink bond purchases (tapers) and possibly raise interest rates by the end of 2022 at the earliest.

It is also worth noting that US President Joe Biden said that he is considering the nomination of the next chairman of the Federal Reserve in the near future, and the White House will soon announce the results. Speculation has been expressed that Biden may follow the precedent of former President Trump and announce it after the Fed's November interest rate meeting.

【Advertisement】Pay attention to the public number and learn quantitative investment!