Market News The Fed's forward-looking decision on interest rates: Powell is expected to release a signal to reduce the size, but still faces an arduous task
The Fed's forward-looking decision on interest rates: Powell is expected to release a signal to reduce the size, but still faces an arduous task
After the U.S. stock market suffered "Black Monday", the challenge for the Fed this week will be to make a reassuring statement while acknowledging that it is prepared to abandon the easing policy implemented to fight the epidemic. Currently the Fed purchases Treasury bonds and real estate mortgage bonds at $120 billion per month. Investors are paying attention to clues as to when the Fed will start to reduce the size of its monthly government bond purchases of $120 billion. At present, the market generally expects the Fed to release a signal to reduce debt purchases at this interest rate meeting, but there are still big differences on the date of the implementation of the reduction.
2021-09-22
11678
After the U.S. stock market suffered "Black Monday", the challenge for the Fed this week will be to make a reassuring statement while acknowledging that it is prepared to abandon the easing policy implemented to fight the epidemic.
GMT+8 Thursday (September 23) 02:00 The Federal Reserve will announce the September interest rate resolution, and the Federal Reserve Chairman Powell will hold a press conference at 02:30. The current amount of the Federal Reserve's purchase of Treasury bonds and real estate mortgage bonds is 120 billion per month. Dollar. Investors are paying attention to clues as to when the Fed will start to reduce the size of its monthly government bond purchases of $120 billion. At present, the market generally expects the Fed to release a signal to reduce debt purchases at this interest rate meeting, but there are still big differences on the date of the implementation of the reduction.
Although the market agrees that the Fed will tighten its asset acquisition strategy, its future interest rate policy is still elusive. Interest rate policy is closely related to the Fed’s forecast of the future consumer price index (CPI). Powell has repeatedly stated that he believes that inflation is temporary. However, in the past three months, the CPI index has increased by more than 5 percentage points.
BlackRock's global fixed income investment chief Rick Rieder said that the Fed is expected to say that there are discussions on reducing debt purchases. I don't think they will provide any details, but will provide a framework where they can start in November or December. this way.
Rieder said that he still believes that they will eventually be the same as our final result. Once it starts to reduce the scale of bond purchases, the Fed will gradually tighten its policy at a rate of reducing the purchase of US$10 billion in Treasury bonds and US$5 billion in real estate mortgage bonds every month.
Anwiti Bahuguna, director of multi-asset strategy at Columbia Threadneedle, said that the focus this week will be mainly on the "dot chart" of the Fed's interest rate expectations. Fed officials predict that the "dot chart" of the federal funds rate will be updated this month to reflect these expectations and will also show for the first time Fed officials' expectations for 2024.
Strategists said that interest rate expectations may be an uncertain factor in the market. Closely related to this is the Fed’s inflation expectations. In June, the Fed predicted that this year's CPI would be 3.4%, and it will fall back to 2.1% in 2022.
Bahuguna pointed out that if we only saw two or three members change their minds, it might be a hawkish surprise. Interest rate hike expectations during the year will not change, so the risk is the expected rate hike in the next two years. The market is beginning to think that the interest rate hike cycle will begin next year, which will be "hawkish" information that is unfavorable to the stock market and may lead to an increase in short-term bond interest rates.
Bahuguna pointed out that in June, Fed officials stated that they expected to raise interest rates twice in 2023, which made investors panic and indicated that some Fed members believed that the rise in inflation was not just temporary. If more Fed officials believe that inflation will continue, then this situation may happen again.
BlackRock's global fixed income investment chief Rieder table predicts that the Fed will not change its interest rate forecast for 2022, but will announce its interest rate forecast for 2024 for the first time. These long-term forecasts often change, and they still believe that they can reduce debt purchases and leave other policy windows to open the door for interest rate hikes to begin in 2022.
Rieder does believe that the Federal Reserve will decouple debt purchases from interest rates, but this will provide them with the possibility of actually reducing debt purchases in 2022, provided that employment conditions continue to improve.
The Commonwealth Bank of Australia expects that the U.S. dollar will remain within a narrow range before the Fed’s 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 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.
Bank of Tokyo-Mitsubishi UFJ: U.S. dollar volatility will be relatively limited this week The gradual reduction of quantitative allowances and interest rate hikes were again proposed. Due to continued concerns caused by supply constraints, the US dollar was significantly stronger last Friday, market risk appetite was weak, and the fragile market risk situation seems to be sure to verify that Fed Chairman Powell is reducing quantitative allowances in Jackson Hole. The delivery policy maintains a cautious tendency. Powell is expected to reiterate that if "the economy develops in an all-round way and meets expectations, it may be appropriate to start slowing down the pace of asset purchases this year."
The Bank’s foreign exchange correlation analysis confirms that the U.S. dollar is becoming more and more sensitive to the interest rate fluctuations of the short-end bond curve. Following the Fed meeting, the short-end bond interest rate rose in June, and then the dot pattern rose unexpectedly. It is expected that this will not happen again this week. It is expected that the situation in June will be reproduced in 2024. The market will breathe a sigh of relief in 2023. The US dollar may experience some mild declines. The dot plot shows that the Fed’s increase in the median interest rate in 2022 will trigger a larger foreign exchange market. Volatility, the U.S. dollar may reverse and break through 93.00. The value in the 2022 dot matrix will obviously affect Powell’s attempt to break any link between volume reduction and interest rate hikes. Assuming that the dot matrix does not reveal the expected increase in the median value in 2022, it is expected This week's currency market volatility will be relatively limited.
Standard Chartered Bank: The Federal Reserve may issue a signal to announce debt reduction in November.
This week the Federal Reserve is likely to hint at its next meeting to reduce its debt purchase decision, 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. The U.S. dollar may find short-term support amidst hawkish tendencies and any market hedging reactions.
Bank of America: The Federal Reserve is expected to announce that it will start to slow down the pace of asset purchases this year.
Bank of America expects that the Federal Reserve will make it clear in its FOMC statement this week that it will start to slow down the pace of asset purchases this year. Regarding the latest bitmap to be announced, we believe that everyone’s eyes will be focused on the expected median value in 2022. It is expected that the median value in 2022 will be the Fed keeping the benchmark interest rate unchanged at the current level, but still facing the expected median value. The risk is 12.5 basis points or 25 basis points for a rate hike. In addition, the weak August employment report is expected to keep the 11 members of the Fed who expect the Fed to maintain interest rates unchanged in 2022 to remain on the sidelines.
Jefferies: The Fed will open the door to possible reductions in debt purchases announced in November
Analysts at Jefferies said in the report that the Fed is expected to open the door to the possibility of announcing a reduction in debt purchases in November, provided that the number of jobs in September is strong and the threshold is about 750,000. The Fed’s dot-map will also receive attention, which is a map of Fed officials’ expectations of US interest rates in the next few years. Market trends may change, especially when the interest rate hike cycle is expected to advance.
GMT+8 Thursday (September 23) 02:00 The Federal Reserve will announce the September interest rate resolution, and the Federal Reserve Chairman Powell will hold a press conference at 02:30. The current amount of the Federal Reserve's purchase of Treasury bonds and real estate mortgage bonds is 120 billion per month. Dollar. Investors are paying attention to clues as to when the Fed will start to reduce the size of its monthly government bond purchases of $120 billion. At present, the market generally expects the Fed to release a signal to reduce debt purchases at this interest rate meeting, but there are still big differences on the date of the implementation of the reduction.
Although the market agrees that the Fed will tighten its asset acquisition strategy, its future interest rate policy is still elusive. Interest rate policy is closely related to the Fed’s forecast of the future consumer price index (CPI). Powell has repeatedly stated that he believes that inflation is temporary. However, in the past three months, the CPI index has increased by more than 5 percentage points.
BlackRock's global fixed income investment chief Rick Rieder said that the Fed is expected to say that there are discussions on reducing debt purchases. I don't think they will provide any details, but will provide a framework where they can start in November or December. this way.
Rieder said that he still believes that they will eventually be the same as our final result. Once it starts to reduce the scale of bond purchases, the Fed will gradually tighten its policy at a rate of reducing the purchase of US$10 billion in Treasury bonds and US$5 billion in real estate mortgage bonds every month.
Focusing on the "dot map", interest rate expectations are the biggest uncertain factor
Anwiti Bahuguna, director of multi-asset strategy at Columbia Threadneedle, said that the focus this week will be mainly on the "dot chart" of the Fed's interest rate expectations. Fed officials predict that the "dot chart" of the federal funds rate will be updated this month to reflect these expectations and will also show for the first time Fed officials' expectations for 2024.
Strategists said that interest rate expectations may be an uncertain factor in the market. Closely related to this is the Fed’s inflation expectations. In June, the Fed predicted that this year's CPI would be 3.4%, and it will fall back to 2.1% in 2022.
Bahuguna pointed out that if we only saw two or three members change their minds, it might be a hawkish surprise. Interest rate hike expectations during the year will not change, so the risk is the expected rate hike in the next two years. The market is beginning to think that the interest rate hike cycle will begin next year, which will be "hawkish" information that is unfavorable to the stock market and may lead to an increase in short-term bond interest rates.
Bahuguna pointed out that in June, Fed officials stated that they expected to raise interest rates twice in 2023, which made investors panic and indicated that some Fed members believed that the rise in inflation was not just temporary. If more Fed officials believe that inflation will continue, then this situation may happen again.
BlackRock's global fixed income investment chief Rieder table predicts that the Fed will not change its interest rate forecast for 2022, but will announce its interest rate forecast for 2024 for the first time. These long-term forecasts often change, and they still believe that they can reduce debt purchases and leave other policy windows to open the door for interest rate hikes to begin in 2022.
Rieder does believe that the Federal Reserve will decouple debt purchases from interest rates, but this will provide them with the possibility of actually reducing debt purchases in 2022, provided that employment conditions continue to improve.
The Commonwealth Bank of Australia expects that the U.S. dollar will remain within a narrow range before the Fed’s 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 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.
Institutional perspective
Bank of Tokyo-Mitsubishi UFJ: U.S. dollar volatility will be relatively limited this week The gradual reduction of quantitative allowances and interest rate hikes were again proposed. Due to continued concerns caused by supply constraints, the US dollar was significantly stronger last Friday, market risk appetite was weak, and the fragile market risk situation seems to be sure to verify that Fed Chairman Powell is reducing quantitative allowances in Jackson Hole. The delivery policy maintains a cautious tendency. Powell is expected to reiterate that if "the economy develops in an all-round way and meets expectations, it may be appropriate to start slowing down the pace of asset purchases this year."
The Bank’s foreign exchange correlation analysis confirms that the U.S. dollar is becoming more and more sensitive to the interest rate fluctuations of the short-end bond curve. Following the Fed meeting, the short-end bond interest rate rose in June, and then the dot pattern rose unexpectedly. It is expected that this will not happen again this week. It is expected that the situation in June will be reproduced in 2024. The market will breathe a sigh of relief in 2023. The US dollar may experience some mild declines. The dot plot shows that the Fed’s increase in the median interest rate in 2022 will trigger a larger foreign exchange market. Volatility, the U.S. dollar may reverse and break through 93.00. The value in the 2022 dot matrix will obviously affect Powell’s attempt to break any link between volume reduction and interest rate hikes. Assuming that the dot matrix does not reveal the expected increase in the median value in 2022, it is expected This week's currency market volatility will be relatively limited.
Standard Chartered Bank: The Federal Reserve may issue a signal to announce debt reduction in November.
This week the Federal Reserve is likely to hint at its next meeting to reduce its debt purchase decision, 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. The U.S. dollar may find short-term support amidst hawkish tendencies and any market hedging reactions.
Bank of America: The Federal Reserve is expected to announce that it will start to slow down the pace of asset purchases this year.
Bank of America expects that the Federal Reserve will make it clear in its FOMC statement this week that it will start to slow down the pace of asset purchases this year. Regarding the latest bitmap to be announced, we believe that everyone’s eyes will be focused on the expected median value in 2022. It is expected that the median value in 2022 will be the Fed keeping the benchmark interest rate unchanged at the current level, but still facing the expected median value. The risk is 12.5 basis points or 25 basis points for a rate hike. In addition, the weak August employment report is expected to keep the 11 members of the Fed who expect the Fed to maintain interest rates unchanged in 2022 to remain on the sidelines.
Jefferies: The Fed will open the door to possible reductions in debt purchases announced in November
Analysts at Jefferies said in the report that the Fed is expected to open the door to the possibility of announcing a reduction in debt purchases in November, provided that the number of jobs in September is strong and the threshold is about 750,000. The Fed’s dot-map will also receive attention, which is a map of Fed officials’ expectations of US interest rates in the next few years. Market trends may change, especially when the interest rate hike cycle is expected to advance.
Bonus rebate to help investors grow in the trading world!
Or try Free Demo Trading