[FOMC Preview] The focus is on the Federal Reserve, which is likely to leave interest rates unchanged, large interest rate cuts and a slowdown in the pace of quantitative tightening

Japan timeThursday, February 1, 2024, at the Federal Open Market Committee (FOMC)Policy interest rate decisionIt is planned to be announced. Along with policy decisionsFOMC statementwill also be announced. After presentationFOMC press conferenceIt is planned to be held.

Since the economic outlook by FOMC members and the “policy interest rate level distribution chart (dot chart)” that members consider appropriate will not be disclosed this time, market participants are waiting for the FOMC statement and information on the possibility of quantitative tightening (QT) deceleration and suggestions regarding the first interest rate cuts in 2024 from Chairman Powell's remarks at the press conference.

There is a high probability that the Fed will leave interest rates unchanged
According to Fedwatch, which is based on FF interest rate futures, the market97.9% chancePolicy interest rates withLeave it at 5.25-5.50%I anticipate that.

The probability that interest rates will be cut in March is 47.6%, and May is over 90%.

Chairman Powell expects to stick to “it depends on data”
There is a high possibility that there is no content suggesting early interest rate cuts in the FOMC statement and Chairman Powell's press conference after the meeting.

Chairman Powell maintains the stance that future monetary policy “depends on data,” and it is expected that he will show that options for additional interest rate hikes or early interest rate cuts will not be ruled out.

Meanwhile, there is a possibility that the market will capture early interest rate cuts when Chairman Powell fights against early interest rate cut observations in the market, as a hawkish message, alludes to confidence in inflation deceleration, or when early interest rate cuts become a reality by showing specific details of the timing and conditions for interest rate cuts, it may be captured by the market as a dovish message.

Market participants await further comments on the Fed's QT
Over the past year and a half, the US financial authorities have implemented a monthly runoff (reduction in securities holdings associated with redemption) of US bonds worth up to 60 billion dollars (about 8.84 trillion yen) and agency bonds equivalent to 35 billion dollars. According to the latest data from the Federal Reserve (FRB), the balance sheet of financial authorities decreased by about 1.24 trillion dollars to 7.68 trillion dollars after the start of QT, while the use of RRP the next day fell by about 1.38 trillion dollars during the same period.

However, active discussions are being held about the extent to which balance sheet compression called quantitative tightening (QT) can be continued without causing confusion in the repo market, etc., which performs an important function in the financial system, whether there are any mistakes in judgment by the authorities. Among market participants, predictions have surfaced that plans related to balance sheets will be further shown after the Federal Open Market Committee (FOMC) meetings to be held by the financial authorities on the 30th and 31st.

At the FOMC meeting in December last year, some officials expressed the idea that it is appropriate to begin discussions on technical factors that determine when the pace of runoff decelerates. Dallas Federal Reserve President Logan stated at the beginning of this month that if signs of a decline in liquidity are seen in financial markets, it may be necessary to slow down the pace of balance sheet compression, and speculations about the authorities' plans spread.

There are also statements from other officials, and the opinions of Wall Street strategists are divided. Bank of America (BoFA) and Barclays announced QT tapering during the FOMC meetings on March 19 and 20, and it is expected that it will end by July. In contrast to this, Wrightson, Deutsche Bank, etc. believe that there is a large probability that it will be June as the starting time for tapering.

US Economic Overview
Since the Federal Open Market Committee (FOMC) in December, inflation data has continued to show an easing trend. Although the comprehensive consumer price index (CPI) for December surpassed expectations and rebounded from a 0.1% increase from the previous month to a 0.3% increase, the core CPI remained flat with a 0.3% increase from the previous month and matched expectations.

The core personal consumption expenditure price index (core PCE) for December increased 2.9% from the same month last year. This figure fell short of expectations of 3.0% and November's 3.2%, making it the slowest growth since March 2021. It should be noted thatCore PCE remained at 1.9% and 1.5%, respectively, in annual terms, below the Federal Reserve (Fed) target of 2%I got it.

Strong private consumption boosted US economic growth in the fourth quarter, which exceeded expectations. According to data from the U.S. Bureau of Economic Analysis (BEA)US real GDP for the fourth quarter of 2023 increased at an annual rate of 3.3%, far exceeding market expectations of 2%I got it。The economic growth rate for the full year of 2023 was 2.5%, and it recorded the fastest annual growth rate in the past 2 years.

Number of people employed in the non-farm sector in the US in DecemberIsAn increase of 216,000 people、The forecast is an increase of 170,000 peopleThere was an increase of 173,000 people in the previous fiscal year. The unemployment rate is 3.7%, and the forecast is 3.8%. The rate of wage growth also exceeded market expectations. Also, automatic data processing for enterprise payroll services (ADP) announcedDecember US Employment ReportAccording toNumber of people employed in the non-farm sectorIsAn increase of 164,000 people、The market forecast is an increase of 115,000 people.The annual salary increased by 5.4%.

Meanwhile, out of the past 11 reports on the number of people employed in the non-farm sector, 10 were drastically revised downward, and 45,000 people were revised downward in October and 26,000 in November. Even with JOLTS data, the number of job offers in 2023/11 fell to a low level since 2021/4, indicating a cooling in labor demand. Furthermore, the December service sector employment index announced by the U.S. Institute for Supply Management (ISM) was 43.3, which recorded a low level since 2020/7. This figure appears to be inconsistent with other survey data showing steady employment.

These data areThe US labor market is still solid, but it's not necessarily overheatedIt seems to suggest it.