[FOMC Preview] Maintaining the status quo? In addition to when interest rate cuts will begin, pay attention to discussions on the end of QT

moomooニュース米国株 wrote a column · Mar 19, 2024 17:49

This article uses automatic translation for some of its parts

● Guidance path targets for FOMC and Federal Fund (FF) interest rates for MarchLeave it unchanged at 5.25% ~ 5.50%The probability of
● As for the market, the “distribution chart of policy interest rate levels (dot chart)” is 25 basis points (bp, 1 bp = 0.01%) by the end of the yearRevised to suggest that 2 rate cuts are appropriate (3 times as of the previous December) is expected. Also,Inflation forecasts etc. were revised upwardThe probability of
●At the FOMC in MarchDeceleration of quantitative tighteningThere will be specific discussions about the University of Public Finance
● As for US bond yields, the 2-year yield tested the resistance line of 4.75%, and the 10-year yield broke through 4.35% for the first time since November last year, so there is a high probability that the adjustment phase will expand with each tenor

Over 2 daysFOMC Monetary Policy MeetingisIt is scheduled to end at 03:00 on Thursday the 21st Japan time。FOMC Chairman Powell's Press ConferenceIsFrom 03:30 on Thursday the 21st Japan timeIt is scheduled to take place.

Of the 108 economists surveyed by Reuters, all expect the US Federal Reserve (Fed) to leave interest rates unchanged in the range of 5.25 to 5.50%. Similarly, traders expect that the possibility that interest rate cuts will be implemented this week is only 1%, according to CME's FedWatch tool.

Data time: 2024.03.19

“Distribution chart of policy interest rate levels (dot chart)” is likely to change
In preparation for the Fed meeting, what is essential is not the current interest rate, but rather the central bank's future interest rate forecast (that is, a “dot plot” of interest rate predictions). What we must not forget is that the previous economic forecast summary announced in December included the following dot plot, and the median forecast by FOMC members is the 25 bps interest rate cut 3 times in 2024.

[FOMC Preview] Maintaining the status quo? In addition to when interest rate cuts will begin, pay attention to discussions on the end of QT

There is a possibility that the median Fed Dot value in 2024 will rise to 4.9%, or that interest rate cuts in 2024 will remain at least 2 times. For such changes to occur, it is sufficient for 2 FOMC members (out of 19) to shift their expectations towards rising interest rates.

What is noteworthy is that Federal Reserve Chairman Powell stated at the previous press conference that he would like to confirm that low inflation will continue in order for the FOMC to have confidence to cut interest rates. However, recent months of data have shown strong high inflation and continued strength in the labor market, and Chairman Powell and his colleagues suggest there is no need to cut interest rates as aggressively as previously anticipated.

Source: Prepared by the Dai-ichi Life Economics Research Institute from CME, Philadelphia Federal Bank, NY Federal Reserve Bank, and Federal Reserve

Note: The economic forecasts for FOMC members and private sector experts are as of December (September in parentheses) and February (same, November), respectively. Only private sector forecasts for growth rate and unemployment rate are annual averages; everything else is the year-on-year ratio as of 4Q every year.

Has inflation slowed more slowly than expected
The Summary of Economic Impacts (SEP) of December last year depicts the deceleration of the US economy, and predicted that GDP would slow to 1.4% by the end of 2024, the unemployment rate would rise to 4.2%, and the core inflation rate would fall to 2.4%.

However, since the beginning of the year, the economy has continued to grow above the trend, the labor market continues to be strong, and the inflation rate is showing signs of stabilizing around 3%.

Based on these developments, there is a possibility that the outlook for the full year 2025-26 will not change, but there is a high possibility that SEP will make revisions reflecting the steadiness of the economy.

Source: Bankrate

Discussion on the deceleration of quantitative tightening (QT)
While US Federal Reserve (Fed) officials are preparing to talk in depth about balance sheets at next week's meeting, Wall Street strategists have no objection that the risk of any of the plans discussed by central banks is increasing.

Quantitative tightening (QT) is an instrument of monetary policy. An abbreviation that takes the acronym “Intensive Tightening” in English. The balance sheet is gradually reduced by selling assets held by the central bank, such as government bonds, etc., or by stopping reinvestment of bonds that have reached maturity and making them redeemed. Money will be withdrawn from the market to curb economic overheating and excessive inflation.

There is a tendency to anticipate that the Fed will announce balance sheet reduction (quantitative tightening, QT) as early as May, or that it will begin to decelerate, and there is also a trend that sees that contraction will not begin until the latter half of the year. This divergence stems from a myriad of variables that can influence the timing of QT deceleration, from the exhaustion of reverse repo trading systems to the emergence of distortions in financing brought about by lack of bank reserves.

Policymakers like Dallas Fed President Rory Logan have stated that central banks will be able to slow down the pace of shrinking their balance sheets as the RRP facility becomes empty, and that slowing down the pace does not mean that the central bank will completely stop QT. Central banks learned lessons in 2019 when different overnight market interest rates soared 5 times to 10%, and central banks were forced to intervene.

Federal Reserve Policy and US 10-Year Bond Yield
The US Federal Reserve (Fed) policy interest rate has been stable since last summer, but even so, the bond market has not stopped speculating about how inflation and growth rates will be affected. Meanwhile, $U.S. 10-Year Treasury Notes Yield (US10Y.BD)$It surged from 3.9% to 5.0%, then fell again, but this year it settled into the 4.1% to 4.3% range.

The first interest rate hike was postponed in June last year, and the FOMC left the federal funds interest rate unchanged at 5.25% in order to determine the impact of interest rate hikes so far on full employment and price stability goals. Two weeks later, 10-year bond yields fell slightly by 8 basis points from 3.79% to 3.71%, and the market was worried about a possible economic slowdown or recession.

Meanwhile, after the Fed raised the federal funds interest rate to 5.50% on 7/26, the bond market immediately raised the 10-year yield by 31 basis points, and even after the Fed expressed its intention to suspend interest rate hikes as of 9/20, it rose to 5%. By the Federal Open Market Committee (FOMC) on November 1, the bond market changed its perception of the Fed's policy, and it quickly came to an end when interest rate hikes were cut as early as this month, and as a result, the downward trend in 10-year yield continued until the end of the year.

Source: Realeconomy

The Federal Reserve Policy and US Stocks
The stock market's reaction to the Fed's policy is different.

After the Federal Reserve implemented the last rate hike on July 26, the stock market performed well after recording a decline of about 10% in 3 months from the view that the policy would induce a recession. $S&P 500 Index (.SPX.US)$It rose 24% from late October to the 1st week of March, and high-tech stocks in the NASDAQ index rose 29%.

These stock market results may be more closely related to perceptions of an economy where innovation is progressing more and more rather than the fact that the Fed is trying to limit demand to control inflation.

Source: Realeconomy

Recent Federal Reserve Officials Speeches

Observation of interest rate cuts
According to the CME Group's FedWatch tool, FF interest rate futures traders will temporarily wait until JuneThe probability that interest rate cuts will be implemented is 55.17%, by SeptemberThe probability that interest rate cuts will be implemented is 91.58%I was looking at it.

Data time: 2024.03.19

— MooMoo News Zeber
Source: Bloomberg, Reuters, Nihon Keizai Shimbun, CME FedWatch, Dai-ichi Life Economics Research Institute, Bankrate, Realeconomy, Forex,
This article uses automatic translation for some of its parts

Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only. Read more

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181537335 : Is it Powell again

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181537335 : Please retire as soon as possible with President Kishida.

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西野カナかな : I understand the reason for today's decline in US debt.

If you discount this point, it seems like they are thinking about inducing interest rate increases or extending interest rate cuts.

The point of concern was whether the current economy really had no problems, and I felt that if the actual economy was weak, it was important to cut interest rates urgently or induce government bonds to the 3% range.

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