Market News The Fed's final forward-looking resolution: one obstacle must be cleared and three questions must be clarified
The Fed's final forward-looking resolution: one obstacle must be cleared and three questions must be clarified
GMT+8 At 2:00 am on September 23, the Federal Reserve will announce its new monetary policy. It is expected to clear the way for reducing the scale of monthly asset purchases later this year. The updated economic forecast is expected to show whether higher-than-expected inflation or a renewed epidemic will cause more drag on the economic outlook. The updated bitmap will reveal whether decision-makers continue to believe that the economic impact of the new crown Delta variant virus is still short-lived. Chairman Powell will hold a press conference half an hour after the announcement of the New Deal.
2021-09-22
8330
GMT+8 At 2:00 am on Thursday (September 23), the Federal Reserve will announce its new monetary policy. It is expected to clear the way for reducing the scale of monthly asset purchases later this year. The updated economic forecast is expected to show whether higher-than-expected inflation or a renewed epidemic will cause more drag on the economic outlook. The updated bitmap will reveal whether decision-makers continue to believe that the economic impact of the new crown Delta variant virus is still short-lived. Chairman Powell will hold a press conference half an hour after the announcement of the New Deal.
The Federal Reserve issued a statement after the end of its policy meeting at the end of July, stating that despite the rise in new infections, the US economic recovery is still on track. The tone of this statement remains optimistic, and points out that discussions surrounding the final withdrawal of monetary policy support are ongoing.
Fed Chairman Powell said that before slowing down the current US$120 billion in bond purchases per month, the U.S. job market still needs to make some progress before the economic support measures are withdrawn. “I hope to see some progress in the coming months. Strong employment data".
Powell also downplayed the negative risks brought by the spread of the more contagious Delta mutant strain and the counter-attack of the epidemic. Powell believes that vaccination is the best opportunity for the economy to return to normal for a long time. It should translate into strong employment growth and ultimately push the Fed to withdraw its crisis-era plan.
Since the end of July, the Fed’s decision-makers have faced a series of conflicting realities: signs of slowing service industry growth, a more severe rebound from the epidemic than last summer, weak employment growth in August, and still strong inflation. Officials also have different views on how to react.
① When will the widening be withdrawn
Most Fed officials said that the economic recovery will continue, which will allow the Fed to advance its plan to cut debt purchases before the end of 2021 and stop debt purchases completely in the first half of next year. The Fed currently buys US$120 billion in US debt and mortgage-backed securities every month. However, forecasters and external analysts expect that the Fed will not make it clear when it may start to "shrink", but will tie it to the rebound in employment growth.
Jefferies analysts said that the Fed’s statement may acknowledge that the economy has taken a step towards “substantial further progress,” but that the first actual reduction in asset purchases may “use strong employment growth in September as a prerequisite”.
Most market participants expect that the Fed will begin to reduce debt purchases in December. But Fed officials may believe that they need more time to assess the risks posed by other evolving issues before deciding to advance their debt-buying plans. For example, the partisan deadlock in the U.S. Congress over raising the federal debt ceiling does not seem to have made any progress, and the possibility of a partial shutdown of the federal government is increasing day by day.
Michael Langford, director of AirGuide, a business advisory agency, expects the Fed to be more cautious in reducing stimulus measures. He mentioned a report by the Organization for Economic Cooperation and Development (OECD) that it is too early for governments and central banks to withdraw economic support.
② Economic forecast
The Delta variant virus caused a surge in new crown infections. The decline in some indicators of service sector activity has prompted forecasters to lower their forecasts for economic growth this year. The Fed may also follow in this footsteps.
Although President Biden has announced a policy that requires unvaccinated Americans to be vaccinated, children's return to school and some companies continue to promote plans to return to the office may still increase the risk of further spread of the epidemic.
In addition, Democrats in the U.S. House of Representatives passed a bill on Tuesday to allocate funds to the U.S. federal government until December 3 and suspend the government's borrowing ceiling until the end of 2022. The bill will be submitted to the Senate, but Senate Republicans have vowed to block it.
If Republicans insist on refusing to support this measure in the Senate, Democrats will have to come up with a new strategy, otherwise they will soon face the two problems of partial government shutdown unable to pay the bills and the risk of default for the first time in modern history. .
The White House warned last week that if the US Congress fails to raise the debt ceiling, the US economy may fall into recession, economic growth will stagnate, unemployment will rise, and the labor market may lose millions of jobs.
③ Prospects for interest rates
Once the reduction in debt purchases becomes a reality, this will mark the beginning of a policy departure from the measures adopted in March 2020 to help the economy tide over the epidemic, and gradually move towards the normalization of monetary policy, and eventually measures such as raising interest rates will appear. Although Powell has repeatedly emphasized that even if debt reduction is initiated, it does not mean that interest rate hikes have begun.
The bitmap to be released this week shows whether most decision makers continue to adhere to the recently expressed view that the impact of the new crown Delta variant virus on the economy is only short-lived. The dot plot will also show for the first time the Fed officials’ expectations for 2024.
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.
National Australia Bank’s Director of Economics and Marketing, Tapas Strickland, said: “Even if the reduction is not expected to be announced, the dot plot may bring hawkish surprises. This requires Powell to show a dovish tone at the press conference to counterattack.”
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 the risks are still biased to the upside."
④ Employment recovery
The Fed has stated that it hopes to see "substantial further progress" in the labor market before reducing bond purchases. Although the U.S. non-agricultural jobs increased by slightly more than 1 million in July, it has increased by an average of 716,000 per month since May.
However, employment growth in August was disappointing, with only 235,000 new jobs. The US job market is still about 5.3 million fewer jobs than before the epidemic. High-frequency data and other employment indicators suggest that the upcoming employment growth may also be disappointing.
A JPMorgan Chase model predicts that September employment data will remain weak, as consumers seem to have cut travel and leisure spending since Labor Day. The latest estimate of this model of the quantitative research team is down by nearly 250,000 from two weeks ago, and tracking of the use of Chase credit card data has found that consumer spending on air travel and restaurants has declined.
⑤ Inflationary pressure
However, the new forecasts of policy officials on the economy and interest rates will provide some clues to how soon interest rates will be raised after debt purchases are reduced, especially whether a wave of high inflation will make officials decide to start raising interest rates next year. .
The Fed's preferred inflation indicator-the core personal consumption expenditure (PCE) price index-rose 4.2% year-on-year as of July, twice the Fed's target of 2%. In the minds of some Fed officials, this is sufficient to meet the Fed’s new commitment to keep inflation above the target for a period of time to ensure that the average is up to standard, as a prerequisite for raising interest rates.
The market predicts that in the remainder of 2021, core PCE will maintain an average increase of more than 3.5% every three months. Although the PCE growth rate is expected to decline slightly in the future, it will still be 2% higher than the target value until at least 2023.
Danske Bank: More attention should be paid to the speed of the Fed's reduction of debt purchases
The August employment report and inflation data in the United States were lower than expected. The Fed is not expected to provide more details at this meeting because it has previously stated that it will begin to reduce the scale of debt purchases before the end of the year. Rather than reducing the time to purchase debt, more attention should be paid to the speed of reduction. The Fed is expected to adjust the "dot chart" and signal the first interest rate hike in 2022 (currently in 2023), and it is still expected that the first interest rate hike will take place in September or December in the second half of 2022.
Commonwealth Bank of Australia: Bitmap may affect FOMC's future response
The Commonwealth Bank of Australia expects that the U.S. dollar will remain within a narrow range before the upcoming FOMC policy meeting. Due to the frustrated recovery of the US labor market in August and the surge in severe cases of the new crown, monetary policy may remain unchanged, so the FOMC may wait before announcing a reduction in asset purchases. The Commonwealth Bank of Australia said the FOMC may discuss how (supply) disruptions related to the Delta strain can delay workers' return to the labor market. Nevertheless, rising underlying inflation may also cause more FOMC members to predict the start of an interest rate tightening cycle in 2022 in the dot plot.
Standard Chartered Bank: May issue a signal to announce debt reduction at the November meeting
This week's Federal Open Market Committee (FOMC) is likely to hint at the next meeting of the decision to reduce debt purchases, but will not provide many details. The dot plot may indicate one interest rate hike in 2022 and two interest rate hikes in 2023 and 2024. It is expected that the risk bias will tend to increase the number of interest rate hikes; in our view, the recent increase in hawkish tendencies is not fully priced.
United Overseas Bank: The market is still focusing on when the Fed will reduce its quota
United Overseas Bank pointed out that all attention is still focused on the Fed and the time when the Fed may announce the start of the bond purchase plan. Powell’s speech at the Jackson Hole seminar did not change our views. It is still expected that the Fed will be The upcoming interest rate meeting on September 21-22, 2021 will further clarify the commitment to reduce the timetable for debt purchases. This may last for nearly a year and a half until May 2023, after which it is expected that two interest rate hikes will be made in 2023. The second time, 25 basis points each time, the first time was to raise interest rates by 0.25%-0.50% in June, and the first time was to raise interest rates by 0.50%-0.75% in December.
Westpac: Strong growth is expected to be confirmed
Since the FOMC meeting in July, the United States has laid the foundation for reducing QE, but there are also many disappointing major data. Although the August non-agricultural data did not meet expectations, our bank postponed the expected time for the Federal Reserve to announce debt reduction from September to December, but our bank still expects this process to continue from January to June 2022. After that, economic activity and employment growth in the United States should remain strong, which will shift the policy narrative to raising interest rates. At this meeting, it is expected that the policy prospects of these two stages should be demonstrated, strong growth expectations will be confirmed, and inflation will be at the target level. It is expected that although the narrative will cover risks, economic opportunities should be the focus.
Insight Investment: The Fed meeting is not expected to announce reductions in debt purchases
Insight Investment's portfolio managers Scott Ruesterholz and Gautam Khanna said that the latest US inflation data shows that inflation has peaked, and the first step is taken to realize the Fed's basic assumption that inflation will be a temporary phenomenon. They said that the upcoming Fed meeting is "very unlikely" to announce a reduction in debt purchases. Assuming a strong employment report in September, the Fed will announce debt reduction in November. Although the inflation spike is temporary, it will not return to 2% in the short term. It is estimated that by the end of 2021, the US annual CPI will remain at about 4%, and will remain above 3% by the middle of 2022, until the end of 2022 will further decline.
Look at 93.628 on the dollar index
The dollar index may find support in hawkish tendencies. On the hourly chart, the U.S. Index is in three upward waves starting from 92.32, breaking the 100% target level of 93.267, and the market outlook is expected to reach 93.628. The third wave is a sub-wave of the upward (3) wave starting from 91.941.
Spot gold looks at $1801
Any hint that the Fed will reduce the scale of bond purchases will put pressure on gold prices, but in a high-inflation environment, the short-term decline in gold prices is limited. On the daily chart, the price of gold started an upward (iii) wave trend from US$1,742, and the market outlook is expected to rise above the 38.2% target of US$1801. The (iii) wave is a sub-wave of the upward wave ((i)) that started from $1680.
★Review of last issue
The Federal Reserve issued a statement after the end of its policy meeting at the end of July, stating that despite the rise in new infections, the US economic recovery is still on track. The tone of this statement remains optimistic, and points out that discussions surrounding the final withdrawal of monetary policy support are ongoing.
Fed Chairman Powell said that before slowing down the current US$120 billion in bond purchases per month, the U.S. job market still needs to make some progress before the economic support measures are withdrawn. “I hope to see some progress in the coming months. Strong employment data".
Powell also downplayed the negative risks brought by the spread of the more contagious Delta mutant strain and the counter-attack of the epidemic. Powell believes that vaccination is the best opportunity for the economy to return to normal for a long time. It should translate into strong employment growth and ultimately push the Fed to withdraw its crisis-era plan.
★ Highlights in this issue
Since the end of July, the Fed’s decision-makers have faced a series of conflicting realities: signs of slowing service industry growth, a more severe rebound from the epidemic than last summer, weak employment growth in August, and still strong inflation. Officials also have different views on how to react.
① When will the widening be withdrawn
Most Fed officials said that the economic recovery will continue, which will allow the Fed to advance its plan to cut debt purchases before the end of 2021 and stop debt purchases completely in the first half of next year. The Fed currently buys US$120 billion in US debt and mortgage-backed securities every month. However, forecasters and external analysts expect that the Fed will not make it clear when it may start to "shrink", but will tie it to the rebound in employment growth.
Jefferies analysts said that the Fed’s statement may acknowledge that the economy has taken a step towards “substantial further progress,” but that the first actual reduction in asset purchases may “use strong employment growth in September as a prerequisite”.
Most market participants expect that the Fed will begin to reduce debt purchases in December. But Fed officials may believe that they need more time to assess the risks posed by other evolving issues before deciding to advance their debt-buying plans. For example, the partisan deadlock in the U.S. Congress over raising the federal debt ceiling does not seem to have made any progress, and the possibility of a partial shutdown of the federal government is increasing day by day.
Michael Langford, director of AirGuide, a business advisory agency, expects the Fed to be more cautious in reducing stimulus measures. He mentioned a report by the Organization for Economic Cooperation and Development (OECD) that it is too early for governments and central banks to withdraw economic support.
② Economic forecast
The Delta variant virus caused a surge in new crown infections. The decline in some indicators of service sector activity has prompted forecasters to lower their forecasts for economic growth this year. The Fed may also follow in this footsteps.
Although President Biden has announced a policy that requires unvaccinated Americans to be vaccinated, children's return to school and some companies continue to promote plans to return to the office may still increase the risk of further spread of the epidemic.
In addition, Democrats in the U.S. House of Representatives passed a bill on Tuesday to allocate funds to the U.S. federal government until December 3 and suspend the government's borrowing ceiling until the end of 2022. The bill will be submitted to the Senate, but Senate Republicans have vowed to block it.
If Republicans insist on refusing to support this measure in the Senate, Democrats will have to come up with a new strategy, otherwise they will soon face the two problems of partial government shutdown unable to pay the bills and the risk of default for the first time in modern history. .
The White House warned last week that if the US Congress fails to raise the debt ceiling, the US economy may fall into recession, economic growth will stagnate, unemployment will rise, and the labor market may lose millions of jobs.
③ Prospects for interest rates
Once the reduction in debt purchases becomes a reality, this will mark the beginning of a policy departure from the measures adopted in March 2020 to help the economy tide over the epidemic, and gradually move towards the normalization of monetary policy, and eventually measures such as raising interest rates will appear. Although Powell has repeatedly emphasized that even if debt reduction is initiated, it does not mean that interest rate hikes have begun.
The bitmap to be released this week shows whether most decision makers continue to adhere to the recently expressed view that the impact of the new crown Delta variant virus on the economy is only short-lived. The dot plot will also show for the first time the Fed officials’ expectations for 2024.
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.
National Australia Bank’s Director of Economics and Marketing, Tapas Strickland, said: “Even if the reduction is not expected to be announced, the dot plot may bring hawkish surprises. This requires Powell to show a dovish tone at the press conference to counterattack.”
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 the risks are still biased to the upside."
④ Employment recovery
The Fed has stated that it hopes to see "substantial further progress" in the labor market before reducing bond purchases. Although the U.S. non-agricultural jobs increased by slightly more than 1 million in July, it has increased by an average of 716,000 per month since May.
However, employment growth in August was disappointing, with only 235,000 new jobs. The US job market is still about 5.3 million fewer jobs than before the epidemic. High-frequency data and other employment indicators suggest that the upcoming employment growth may also be disappointing.
A JPMorgan Chase model predicts that September employment data will remain weak, as consumers seem to have cut travel and leisure spending since Labor Day. The latest estimate of this model of the quantitative research team is down by nearly 250,000 from two weeks ago, and tracking of the use of Chase credit card data has found that consumer spending on air travel and restaurants has declined.
⑤ Inflationary pressure
However, the new forecasts of policy officials on the economy and interest rates will provide some clues to how soon interest rates will be raised after debt purchases are reduced, especially whether a wave of high inflation will make officials decide to start raising interest rates next year. .
The Fed's preferred inflation indicator-the core personal consumption expenditure (PCE) price index-rose 4.2% year-on-year as of July, twice the Fed's target of 2%. In the minds of some Fed officials, this is sufficient to meet the Fed’s new commitment to keep inflation above the target for a period of time to ensure that the average is up to standard, as a prerequisite for raising interest rates.
The market predicts that in the remainder of 2021, core PCE will maintain an average increase of more than 3.5% every three months. Although the PCE growth rate is expected to decline slightly in the future, it will still be 2% higher than the target value until at least 2023.
★Foresight of the institution
Danske Bank: More attention should be paid to the speed of the Fed's reduction of debt purchases
The August employment report and inflation data in the United States were lower than expected. The Fed is not expected to provide more details at this meeting because it has previously stated that it will begin to reduce the scale of debt purchases before the end of the year. Rather than reducing the time to purchase debt, more attention should be paid to the speed of reduction. The Fed is expected to adjust the "dot chart" and signal the first interest rate hike in 2022 (currently in 2023), and it is still expected that the first interest rate hike will take place in September or December in the second half of 2022.
Commonwealth Bank of Australia: Bitmap may affect FOMC's future response
The Commonwealth Bank of Australia expects that the U.S. dollar will remain within a narrow range before the upcoming FOMC policy meeting. Due to the frustrated recovery of the US labor market in August and the surge in severe cases of the new crown, monetary policy may remain unchanged, so the FOMC may wait before announcing a reduction in asset purchases. The Commonwealth Bank of Australia said the FOMC may discuss how (supply) disruptions related to the Delta strain can delay workers' return to the labor market. Nevertheless, rising underlying inflation may also cause more FOMC members to predict the start of an interest rate tightening cycle in 2022 in the dot plot.
Standard Chartered Bank: May issue a signal to announce debt reduction at the November meeting
This week's Federal Open Market Committee (FOMC) is likely to hint at the next meeting of the decision to reduce debt purchases, but will not provide many details. The dot plot may indicate one interest rate hike in 2022 and two interest rate hikes in 2023 and 2024. It is expected that the risk bias will tend to increase the number of interest rate hikes; in our view, the recent increase in hawkish tendencies is not fully priced.
United Overseas Bank: The market is still focusing on when the Fed will reduce its quota
United Overseas Bank pointed out that all attention is still focused on the Fed and the time when the Fed may announce the start of the bond purchase plan. Powell’s speech at the Jackson Hole seminar did not change our views. It is still expected that the Fed will be The upcoming interest rate meeting on September 21-22, 2021 will further clarify the commitment to reduce the timetable for debt purchases. This may last for nearly a year and a half until May 2023, after which it is expected that two interest rate hikes will be made in 2023. The second time, 25 basis points each time, the first time was to raise interest rates by 0.25%-0.50% in June, and the first time was to raise interest rates by 0.50%-0.75% in December.
Westpac: Strong growth is expected to be confirmed
Since the FOMC meeting in July, the United States has laid the foundation for reducing QE, but there are also many disappointing major data. Although the August non-agricultural data did not meet expectations, our bank postponed the expected time for the Federal Reserve to announce debt reduction from September to December, but our bank still expects this process to continue from January to June 2022. After that, economic activity and employment growth in the United States should remain strong, which will shift the policy narrative to raising interest rates. At this meeting, it is expected that the policy prospects of these two stages should be demonstrated, strong growth expectations will be confirmed, and inflation will be at the target level. It is expected that although the narrative will cover risks, economic opportunities should be the focus.
Insight Investment: The Fed meeting is not expected to announce reductions in debt purchases
Insight Investment's portfolio managers Scott Ruesterholz and Gautam Khanna said that the latest US inflation data shows that inflation has peaked, and the first step is taken to realize the Fed's basic assumption that inflation will be a temporary phenomenon. They said that the upcoming Fed meeting is "very unlikely" to announce a reduction in debt purchases. Assuming a strong employment report in September, the Fed will announce debt reduction in November. Although the inflation spike is temporary, it will not return to 2% in the short term. It is estimated that by the end of 2021, the US annual CPI will remain at about 4%, and will remain above 3% by the middle of 2022, until the end of 2022 will further decline.
★Technical analysis
Look at 93.628 on the dollar index
The dollar index may find support in hawkish tendencies. On the hourly chart, the U.S. Index is in three upward waves starting from 92.32, breaking the 100% target level of 93.267, and the market outlook is expected to reach 93.628. The third wave is a sub-wave of the upward (3) wave starting from 91.941.
Spot gold looks at $1801
Any hint that the Fed will reduce the scale of bond purchases will put pressure on gold prices, but in a high-inflation environment, the short-term decline in gold prices is limited. On the daily chart, the price of gold started an upward (iii) wave trend from US$1,742, and the market outlook is expected to rise above the 38.2% target of US$1801. The (iii) wave is a sub-wave of the upward wave ((i)) that started from $1680.
Bonus rebate to help investors grow in the trading world!
Or try Free Demo Trading