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Market News The Fed will announce new forecasts and bitmaps this week, and the reduction of the timetable depends on the "face" of the employment data.
The Fed will announce new forecasts and bitmaps this week, and the reduction of the timetable depends on the "face" of the employment data.
Fed officials will announce the latest estimates at the interest rate meeting this week, when they will reveal the time and frequency of interest rate hikes for the US economy in the next three years. Investors will be ready to speed up the pace of tightening. Faced with a labor market that may be stagnant or on the verge of a surge, the Fed's policy meeting this week is expected to open the door to reduce its monthly debt purchases, while linking any actual changes to US employment growth in September and beyond.
2021-09-20
10800
Fed officials will announce the latest estimates at the interest rate meeting this week, when they will reveal the time and frequency of interest rate hikes for the US economy in the next three years. Investors will be ready to speed up the pace of tightening.
The Fed publishes a "dot map" every quarter, which shows policymakers' forecasts on economic growth, employment and inflation, and the timing of interest rate hikes without anonymity.
The bitmap will show whether most policymakers have adhered to the recently expressed view that the impact of the new crown Delta variant virus on the economy is only short-lived. The virus currently causes turbulence and uncertainty and weakens economic activity. This week’s dot plot will also show for the first time Fed officials’ expectations for 2024.
Interest rates have been close to zero since the beginning of the new crown epidemic, and the Fed has promised not to raise borrowing costs until the economy has fully recovered. According to the latest framework of the Federal Reserve, this means that while achieving the 2% average inflation target, more attention will be paid to achieving maximum employment.
Roberto Perli, an analyst at Cornerstone Macro, said, “We all know that dot plots are not promises or guarantees, but this is still the best way for the market to judge future policies, and risks are still biased to the upside.”
(Dot map)
Fed officials believe that even if employment and product supply are restricted, demand directly affected by the asset purchase plan has rebounded, and the plan has produced results.
The reduction in debt purchases may be completed as early as mid-2022, clearing the way for the Fed to raise interest rates from near zero at any time thereafter.
Analysts interviewed by the Reuters survey in September predicted that US interest rates will remain near zero until 2023, but more than a quarter of the respondents predict that the Fed will raise interest rates next year.
If the Fed's median interest rate forecast for 2022 and 2023 remains unchanged, investors will focus on 2024, because once the rate hike begins, investors will analyze the rate of interest rate hikes. The forecast will also show how many policymakers, if any, believe that interest rates will remain unchanged until at least 2024. In June, 5 out of 18 decision makers believed that interest rates would remain unchanged before the end of 2023.
Currently, federal funds rate futures, which track short-term interest rate expectations, show that there will be one rate hike in 2023 and one or two more rate hikes in 2024, but the latest survey of primary market traders shows that there will be three more rate hikes. The Fed conducts this survey before each meeting to understand market expectations.
Capital Economics economist Michael Pierce said that if the Fed predicts three or more interest rate hikes in 2024 at this week’s meeting, “this will send a hawkish signal that is enough to offset any concerns about curtailing purchases. Dovish information on debt".
Faced with a labor market that may be stagnant or on the verge of a surge, the Fed's policy meeting this week will not only open the door to reduce its monthly debt purchases, but will also tie any actual changes to US employment growth in September and beyond.
Fed officials, including Chairman Powell, have stated that the Fed may reduce its monthly bond purchases by US$120 billion later this year as the first step to end the crisis-period policies implemented during the spring of 2020 when the new crown epidemic occurred.
But after unexpectedly adding 235,000 non-agricultural jobs in August, officials will hope to keep options open. If job growth rebounds and the risk of the epidemic subsides, they will prepare for the policy meeting on November 2-3 as soon as possible. Decided to reduce bond purchases, but if the epidemic hinders recovery, they can also postpone any "downsizing."
According to the latest Reuters survey, more than 60% of economists expect the first change in debt purchases to occur in December. The survey also shows that they have cut their forecasts for US economic growth in 2021.
William English, a professor at Yale Business School and a former Federal Reserve official, said, “If (employment) growth slows down a lot, it will be difficult to have the enthusiasm to start reducing debt purchases.” He helped formulate the Fed’s response to the 2007-2009 financial crisis and recession. And the bond purchase plan started.
English said, "They will want more data," "If the data is disappointing, imagine they will eventually wait... This is a tricky statement. They want to open the door, but they can't promise."
This dilemma adds to the weight of the next US employment report to be released on October 8. The data may show whether the impact of the new crown Delta variant is deeper than Fed officials expected earlier in the summer when they said that the economy seems to be getting rid of the impact of the epidemic.
(Employment crawls slowly towards "substantial further progress")
The Fed will hold its next policy meeting on Tuesday (September 21) and Wednesday (September 22). The outcome of the meeting will include the release of new economic forecasts and new interpretations of officials' interest rate expectations. These forecasts will cover data from the unstable period of the summer, including jobs that grew by nearly 1 million in June and July and then fell in August, unexpectedly strong inflation figures, and a surge in new crown infections and deaths that exceeded last summer. .
Although Fed officials seemed very close to making a decision to cut debt purchases at the policy meeting at the end of July, some subsequent data pushed the matter to the opposite side. New York Fed President John Williams and Atlanta Fed President Raphael Bostic both have voting rights in the Federal Open Market Committee (FOMC), and both hope to make a final decision after obtaining more information.
The Fed stated in December that it would restore the 10 million jobs lost due to the epidemic and that it would not make adjustments to bond purchases until "further substantial progress" is made in this work.
It was reasonable at the time to closely link policies with the loss of jobs caused by the epidemic, because the United States was worried that it would fall back into recession, and the new crown vaccine had not yet been widely vaccinated. But now this will make policymakers rely on employment recovery, which is a one-to-one recovery and is affected by a variety of very different factors, such as the adequacy of childcare institutions, or the opposition to wearing masks in major states such as Florida and Texas. Regulations, and how this affects recruitment and whether people can work.
As of August, the 10 million lost jobs had not yet been restored to half. Other relevant statistics, such as the employment participation rate, have not reached the level expected by policymakers such as Richmond Federal Reserve Chairman Thomas Barkin, allowing them to believe that the job market has recovered to the point where they can begin to reduce debt purchases. Degree. Barkin is also a voting member of the FOMC this year.
Some Fed officials, including Governor Christopher Waller, hope to reduce as soon as possible, believing that current debt purchases will not help employment, and that if interest rates are kept low for a long time, housing or other asset bubbles will also bring risks.
For most of the past few months, the inflation rate has also been higher than expected, and other officials have stated that the end of bond purchases should be no later than early next year. However, as many other Fed officials expected, the recent weakening of inflation may weaken the sense of urgency to accelerate action.
All kinds of "accidents" make the Fed's work more complicated
After the year-long performance continued to be stronger than expected, the performance of the US economy in the last two months has been significantly lower than expected. Such surprises, especially the disappointing August employment report, will be taken into consideration when discussing when the Federal Reserve will begin to reduce debt purchases at its meeting next week.
(Citi US Economic Surprise Index)
Tim Duy, chief U.S. economist at SGH Macro Advisors and professor of economics at the University of Oregon, said that this policy divergence means that the Fed will want to retain various options in the coming weeks during a period when economic data is shifting from frightening to optimistic. .
Duy said, "They will act like they did in 2013. They will clear the way for reducing debt purchases at any future meeting,"
In 2013, the Fed released some remarks at the September meeting and began to turn to finally reduce its last round of "quantitative easing" after the financial crisis.
At that meeting, the Fed pointed out that despite the fall in federal government spending, the economy still showed "potentially strong momentum." However, as the impact of the "fiscal austerity" is still uncertain, the committee decided to wait for more evidence that the progress will continue before adjusting the pace of purchases."
The Fed repeated this wording at its next meeting, and then in December 2013 it actually began to reduce bond purchases.
This time, it is the Delta virus variant that poses the risk.
Many economists believe that people are overly concerned about reducing the size of debt purchases, and there is no difference between the time when the Fed starts or ends the reduction in one or two months.
But this will send a strong signal that the US monetary policy is ending the crisis model and will lead people to focus on the next stage of the debate, that is, when inflation will require the Fed to raise the current nearly zero federal funds rate. This is a problem that Fed officials hope to handle correctly.
David Wilcox, a former head of research at the Federal Reserve and now a senior fellow at the Peterson Institute for International Economics, said: “The macro risk surrounding this timing is quite low. What’s important is that we can infer how they interpret the inflation situation. They may want to Before raising the (fed funds) interest rate, are they eager to end the bond purchase plan in time? Because of this, people are not paying attention to this decision as a temporary interest."
The Fed publishes a "dot map" every quarter, which shows policymakers' forecasts on economic growth, employment and inflation, and the timing of interest rate hikes without anonymity.
The bitmap will show whether most policymakers have adhered to the recently expressed view that the impact of the new crown Delta variant virus on the economy is only short-lived. The virus currently causes turbulence and uncertainty and weakens economic activity. This week’s dot plot will also show for the first time Fed officials’ expectations for 2024.
Interest rates have been close to zero since the beginning of the new crown epidemic, and the Fed has promised not to raise borrowing costs until the economy has fully recovered. According to the latest framework of the Federal Reserve, this means that while achieving the 2% average inflation target, more attention will be paid to achieving maximum employment.
Roberto Perli, an analyst at Cornerstone Macro, said, “We all know that dot plots are not promises or guarantees, but this is still the best way for the market to judge future policies, and risks are still biased to the upside.”
(Dot map)
Analysts expect the Fed’s September 21-22 policy meeting to open the door to reduce its monthly bond purchases
Fed officials believe that even if employment and product supply are restricted, demand directly affected by the asset purchase plan has rebounded, and the plan has produced results.
The reduction in debt purchases may be completed as early as mid-2022, clearing the way for the Fed to raise interest rates from near zero at any time thereafter.
Analysts interviewed by the Reuters survey in September predicted that US interest rates will remain near zero until 2023, but more than a quarter of the respondents predict that the Fed will raise interest rates next year.
If the Fed's median interest rate forecast for 2022 and 2023 remains unchanged, investors will focus on 2024, because once the rate hike begins, investors will analyze the rate of interest rate hikes. The forecast will also show how many policymakers, if any, believe that interest rates will remain unchanged until at least 2024. In June, 5 out of 18 decision makers believed that interest rates would remain unchanged before the end of 2023.
Currently, federal funds rate futures, which track short-term interest rate expectations, show that there will be one rate hike in 2023 and one or two more rate hikes in 2024, but the latest survey of primary market traders shows that there will be three more rate hikes. The Fed conducts this survey before each meeting to understand market expectations.
Capital Economics economist Michael Pierce said that if the Fed predicts three or more interest rate hikes in 2024 at this week’s meeting, “this will send a hawkish signal that is enough to offset any concerns about curtailing purchases. Dovish information on debt".
November or December? The Fed's reduction schedule depends on the "face" of employment data
Faced with a labor market that may be stagnant or on the verge of a surge, the Fed's policy meeting this week will not only open the door to reduce its monthly debt purchases, but will also tie any actual changes to US employment growth in September and beyond.
Fed officials, including Chairman Powell, have stated that the Fed may reduce its monthly bond purchases by US$120 billion later this year as the first step to end the crisis-period policies implemented during the spring of 2020 when the new crown epidemic occurred.
But after unexpectedly adding 235,000 non-agricultural jobs in August, officials will hope to keep options open. If job growth rebounds and the risk of the epidemic subsides, they will prepare for the policy meeting on November 2-3 as soon as possible. Decided to reduce bond purchases, but if the epidemic hinders recovery, they can also postpone any "downsizing."
According to the latest Reuters survey, more than 60% of economists expect the first change in debt purchases to occur in December. The survey also shows that they have cut their forecasts for US economic growth in 2021.
William English, a professor at Yale Business School and a former Federal Reserve official, said, “If (employment) growth slows down a lot, it will be difficult to have the enthusiasm to start reducing debt purchases.” He helped formulate the Fed’s response to the 2007-2009 financial crisis and recession. And the bond purchase plan started.
English said, "They will want more data," "If the data is disappointing, imagine they will eventually wait... This is a tricky statement. They want to open the door, but they can't promise."
This dilemma adds to the weight of the next US employment report to be released on October 8. The data may show whether the impact of the new crown Delta variant is deeper than Fed officials expected earlier in the summer when they said that the economy seems to be getting rid of the impact of the epidemic.
(Employment crawls slowly towards "substantial further progress")
The Fed will hold its next policy meeting on Tuesday (September 21) and Wednesday (September 22). The outcome of the meeting will include the release of new economic forecasts and new interpretations of officials' interest rate expectations. These forecasts will cover data from the unstable period of the summer, including jobs that grew by nearly 1 million in June and July and then fell in August, unexpectedly strong inflation figures, and a surge in new crown infections and deaths that exceeded last summer. .
Although Fed officials seemed very close to making a decision to cut debt purchases at the policy meeting at the end of July, some subsequent data pushed the matter to the opposite side. New York Fed President John Williams and Atlanta Fed President Raphael Bostic both have voting rights in the Federal Open Market Committee (FOMC), and both hope to make a final decision after obtaining more information.
The Fed stated in December that it would restore the 10 million jobs lost due to the epidemic and that it would not make adjustments to bond purchases until "further substantial progress" is made in this work.
It was reasonable at the time to closely link policies with the loss of jobs caused by the epidemic, because the United States was worried that it would fall back into recession, and the new crown vaccine had not yet been widely vaccinated. But now this will make policymakers rely on employment recovery, which is a one-to-one recovery and is affected by a variety of very different factors, such as the adequacy of childcare institutions, or the opposition to wearing masks in major states such as Florida and Texas. Regulations, and how this affects recruitment and whether people can work.
As of August, the 10 million lost jobs had not yet been restored to half. Other relevant statistics, such as the employment participation rate, have not reached the level expected by policymakers such as Richmond Federal Reserve Chairman Thomas Barkin, allowing them to believe that the job market has recovered to the point where they can begin to reduce debt purchases. Degree. Barkin is also a voting member of the FOMC this year.
Some Fed officials, including Governor Christopher Waller, hope to reduce as soon as possible, believing that current debt purchases will not help employment, and that if interest rates are kept low for a long time, housing or other asset bubbles will also bring risks.
For most of the past few months, the inflation rate has also been higher than expected, and other officials have stated that the end of bond purchases should be no later than early next year. However, as many other Fed officials expected, the recent weakening of inflation may weaken the sense of urgency to accelerate action.
All kinds of "accidents" make the Fed's work more complicated
After the year-long performance continued to be stronger than expected, the performance of the US economy in the last two months has been significantly lower than expected. Such surprises, especially the disappointing August employment report, will be taken into consideration when discussing when the Federal Reserve will begin to reduce debt purchases at its meeting next week.
(Citi US Economic Surprise Index)
How different is it from 2013?
Tim Duy, chief U.S. economist at SGH Macro Advisors and professor of economics at the University of Oregon, said that this policy divergence means that the Fed will want to retain various options in the coming weeks during a period when economic data is shifting from frightening to optimistic. .
Duy said, "They will act like they did in 2013. They will clear the way for reducing debt purchases at any future meeting,"
In 2013, the Fed released some remarks at the September meeting and began to turn to finally reduce its last round of "quantitative easing" after the financial crisis.
At that meeting, the Fed pointed out that despite the fall in federal government spending, the economy still showed "potentially strong momentum." However, as the impact of the "fiscal austerity" is still uncertain, the committee decided to wait for more evidence that the progress will continue before adjusting the pace of purchases."
The Fed repeated this wording at its next meeting, and then in December 2013 it actually began to reduce bond purchases.
This time, it is the Delta virus variant that poses the risk.
Many economists believe that people are overly concerned about reducing the size of debt purchases, and there is no difference between the time when the Fed starts or ends the reduction in one or two months.
But this will send a strong signal that the US monetary policy is ending the crisis model and will lead people to focus on the next stage of the debate, that is, when inflation will require the Fed to raise the current nearly zero federal funds rate. This is a problem that Fed officials hope to handle correctly.
David Wilcox, a former head of research at the Federal Reserve and now a senior fellow at the Peterson Institute for International Economics, said: “The macro risk surrounding this timing is quite low. What’s important is that we can infer how they interpret the inflation situation. They may want to Before raising the (fed funds) interest rate, are they eager to end the bond purchase plan in time? Because of this, people are not paying attention to this decision as a temporary interest."
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