Expected contents of the Fed's actions anticipated to take place on December 14th.

This week, the Federal Reserve Board (FRB) seems to be a major turning point for policymakers who have been struggling with runaway inflation over the past two years.

It is unlikely that central bank policymakers will raise interest rates. However, this is not important: What is likely to happen after Wednesday's Federal Open Market Committee (FOMC) meeting is a shift from aggressive rate hikes to the next phase.policy shiftIt is.

This will mark the third consecutive meeting where the FRB will defer raising interest rates.

While acknowledging the possibility of further rate hikes if inflation accelerates in the future, the expectation is higher for the economy to cool down, leading to a scenario shift towards rate cuts in 2024.

The transition to rate cuts may be delicately expressed, but it will be a significant pivot for the FRB after eleven rate hikes.

In addition to interest rate announcements, the FRB will also update forecasts on economic growth, inflation, and unemployment rate. Furthermore, Chairman Powell may discuss the strategy of easing policies given the current slowdown in inflation during the post-meeting press conference, and he may continue to make tough statements.

The following is a brief summary of the expected content:

The Federal Open Market Committee (FOMC) is likely to announce in its post-meeting communication that it will maintain the benchmark overnight interest rate within a range.5.25%〜5.5%There may also be minor adjustments made to the wording of the committee's assessment of employment, inflation, residence, and overall economic growth.

For example, Bank of America believes the committee might state that it is committed to simply returning inflation to 2% rather than referring to any 'additional policy tightening'.

Similarly, Goldman Sachs anticipates that descriptions related to financial tightening may be removed from the statement, with several other small changes used to convey a bias towards rate hikes.

Likewise, Goldman Sachs sees the possibility of some small changes being made in the statement to convey a bias towards rate hikes, as references to financial tightening might be eliminated.

The financial situation, which is a matrix of economic variables and stock prices, has been quite loose since the previous Federal Reserve Board meeting ended on November 1.

As a result, a temporary pause is almost certain. However, it would not be surprising if there is resistance to the easing of financial conditions, not in the statement, but in the press conference. Powell will have to address that.

If a rate cut is imminent, it refers to the "dot plot" that the Federal Reserve Board is monitoring, which is the expectation of each member. What the market is watching is the "median," which is the midpoint of the expectations for all members over the next three years and beyond.

Market pricing is optimistic. According to calculations, traders in the Fed Fund futures market were expecting a rate cut to begin in May 2024, with the Fed potentially lowering the key interest rate by at least 1 percentage point by the end of the year.

If a rate cut is approved and the market even partially agrees, it is likely that the market will continue to rise.

However, many Wall Street strategists and economists are showing a more cautious stance. For example, Goldman Sachs brought forward its initial rate cut forecast, but that's only until the third quarter of next year and significantly diverges from market pricing.

For things to deteriorate so quickly, many events would need to occur. The second half of this year is more realistic than the first half. Not saying it won't happen, but based on current data, it seems premature.

FOMC members announce projections for key economic variables such as gross domestic product, inflation rate indicated by the core personal consumption expenditure price index of the Department of Commerce, and the unemployment rate every quarter.

At the September FOMC meeting, a slowdown in GDP growth, a slight increase in the unemployment rate, and a gradual return to the FRB target for inflation rate until 2026 were indicated.

There is unlikely to be significant changes in these figures. Goldman Sachs had expected a slight upward revision for GDP and a slight downward revision for the unemployment rate and core PCE inflation rate.

There is unlikely to be significant changes here.

Subsequently, Chairman Powell is expected to take the stage. While it may not make the news, it could be an interesting event.

Chairman Powell is mindful of continuing the fight against inflation, while also noting that the real interest rate, the difference between the federal funds rate and the inflation rate, is rising as the inflation rate continues to slow down.

Currently, the FF rate is targeting 5.25%-5.5%, specifically 5.33%. According to the Consumer Price Index released on Tuesday, the inflation rate excluding food and energy in November was 4% annually, while the core PCE inflation rate was 3.5%, and the real interest rate was around 1.8%.

During normal times, FRB officials believe the so-called neutral interest rate (neither restrictive nor stimulative) is close to 0.5%. Therefore, Chairman Powell is expected to state that interest rates are entering a "restrictive territory".

There is no reason for the FOMC leadership to maintain the real restrictive interest rate at the same level at some point in 2024, and it is expected that considering the ongoing rapid disinflation, there may be a need to lower the nominal fund rate. However, it is not anticipated that Chairman Powell will indicate something immediately.