Dry goods! Fed statement comparison: for the first time "slowing down the pace of asset purchases"! Powell said the code reduction may start in November

Local time September 22, Japan Wednesday (GMT+8, Thursday, September 23, 2:00 AM) The Fed's decision on interest rates was as long as expected by the outside world. The statement after the meeting was basically the same as the statement nearly two months ago. However, It is worth noting that the policy makers wrote "slowing down the rate of asset purchases" for the first time, showing that the U.S. central bank is moving towards a reduction in the market's attention as the economic outlook improves. There are three main differences and nine similarities in the wording of the September 22 statement and the July 28 statement.

Three points are different

① Reduce code

September 22: Since (December last year), the economy has made progress towards these goals. If progress continues to be generally in line with expectations, the committee believes that there may be a reason to slow down the pace of asset purchases soon
July 28: Since then (December last year), the U.S. economy has made progress towards these goals, and the committee will continue to evaluate progress at future meetings

② Impact of the epidemic

September 22: The sectors most adversely affected by the epidemic have improved in recent months, but the increase in new crown cases has slowed their recovery
July 28: The sectors most adversely affected by the epidemic have improved, but have not yet fully recovered

③ Inflation

September 22: High inflation rate, mainly reflecting temporary factors
July 28: Inflation rate has risen, mainly reflecting temporary factors

Nine points are the same

① The Fed is committed to using all tools to support the US economy in this challenging time.

②With the progress of vaccination and strong policy support, economic activity and employment indicators continue to strengthen.

③The path of economic development continues to depend on the development of the epidemic.

④ Progress in vaccination may continue to reduce the impact of the public health crisis on the economy, but risks to the economic outlook remain.

⑤The committee strives to achieve full employment and the inflation rate will reach 2% in a relatively long period of time.

⑥As the inflation rate continues to fall below this longer-term target, the committee will seek to achieve an inflation rate that is moderately higher than 2% for a period of time, so that the long-term inflation average can reach 2% and the longer-term inflation expectation remains firmly anchored at 2%.

⑦The Committee is expected to maintain its loose monetary policy stance.

⑧The committee decided to maintain the target range of the federal funds rate between 0% and 0.25%, and expects that the labor market conditions will reach a level consistent with the committee’s assessment of full employment, and that the inflation rate has risen to 2% and is expected to be within a period of time Before the internal moderation exceeds 2%, it is appropriate to maintain this target range.

⑨ If there is a risk that may hinder the achievement of the committee’s goals, the committee will be prepared to appropriately adjust its monetary policy stance.

Fed Chairman Powell said the reduction may start in November and end in mid-2022

Fed Chairman Jay Powell presented a press conference after the interest rate decision. Powell stated that it may start to reduce the scale of asset purchases as early as November and complete the process by mid-2022. Fed officials have previously revealed that they are increasingly inclined to start raising interest rates in 2022.

Powell said at a press conference after the end of the Fed's policy meeting on Wednesday that the reduction "may be announced at the next meeting at the earliest."

This refers to the policy meeting on November 2-3. However, he also expressed his willingness to wait longer if necessary, and emphasized that the reduction does not mean that the countdown to interest rate hikes has begun.

Powell said: “Scaling down the timing and speed of asset purchases will not directly signal the timing of interest rate hikes.” He also said that he does not expect the Fed to start raising interest rates before the reduction is completed.

Powell's speech received the attention of investors and the White House. His term as chairman will end in February next year, and Biden is expected to decide whether to nominate him for re-election this fall.

Fed officials hinted that it may soon begin to scale back bond purchases. The Fed also released its latest quarterly forecast, and the two factions are equally in number as to whether interest rates should be raised next year at the earliest. The median forecast for June is to raise interest rates until 2023.

Diane Swonk, chief economist of Grant Thornton LLP, said after the announcement, "We expect the Fed to become more hawkish."

Latest economic forecast

The Federal Open Market Committee decided to maintain the target range of the federal funds rate at zero to 0.25% and continue to purchase US Treasury bonds and mortgage-backed securities at a rate of $120 billion per month. The above-mentioned resolution was unanimously supported by the committee members.

The Federal Reserve announced its forecast for 2024 for the first time. The median forecast is that the federal funds rate will reach 1.8% by the end of 2024. The median forecast for 2023 is 1%, which is higher than the 0.6% forecast in June.

(Dot map)

Other median forecasts:

The inflation rate forecast for 2022 is raised from 2.1% in June to 2.2%; the forecast for 2023 is maintained at 2.2%.

The unemployment rate is predicted to be 3.8% in 2022 and 3.5% in 2023; both are the same as the median forecast in June.

GDP is forecast to grow by 3.8% in 2022 and 2.5% in 2023; both are higher than the forecast in June. However, the GDP growth forecast for 2021 is 5.9%, which is lower than the 7% forecast in June.

The Fed also stated that it will double the limit for each counterparty of the overnight reverse repurchase tool to US$160 billion per day.

The U.S. unemployment rate fell to 5.2% in August, far below the peak of 14.8% set in April 2020 but still higher than the level of 3.5% in February 2020, which was before the outbreak. Fed officials have previously stated that they plan to maintain the fund rate near zero "until labor market conditions reach a level consistent with the committee's assessment of full employment."

On the whole, as the Federal Reserve accelerates its reversal of the crisis policy during the pandemic, the interest rate hike after the end of debt purchases may be earlier than expected.

The Fed’s latest policy statement and separately released economic forecasts reflect this slight hawkish tendency. The statement and forecast show that nine out of 18 policymakers expect to raise interest rates in 2022 to deal with inflation.

As long as U.S. employment growth is "reasonably strong" in September, the Fed can begin to reduce the size of its monthly debt purchases by $120 billion after the November 2-3 policy meeting. Powell will hold a press conference after the two-day policy meeting. Express. The United States will announce the September employment report in early October, which is the last employment report before the November meeting.

Powell said that “there is no need for an astonishing or super strong employment report” to prompt the Fed to start “shrinking” its debt-purchasing program, which is expected to end in the middle of next year.

This timetable is quite meaningful. The Fed hopes to end bond purchases before it starts raising interest rates. The latest forecast shows that Fed officials are now preparing to start raising interest rates in 2022.

After the interest rate decision and Powell's speech, the US stock market's gains narrowed, the 10-year US Treasury bond yields rose, spot gold rose and fell, and the US dollar index bottomed out and rebounded.

At 07:00 GMT+8, spot gold is now at US$1,768.68 per ounce, and the US dollar index is now at 93.43.