Global investors focus on the Federal Reserve’s monetary policy decision.
At 2:00 a.m. Beijing time on June 17, the Federal Reserve will announce the interest rate decision, and then Fed Chairman Powell will hold a press conference at 02:30. The market expects that the Fed will not take any policy measures this time, but it may send a signal to the market that it is considering changing its bond purchase policy. Under the dual pressures of employment and inflation, the Fed’s policy turning point has become the focus of the market’s most concern. Global capital markets will pay close attention to changes in the Fed’s wording on issues such as inflation, QE reduction, and interest rate hikes.
Focus 1: Raise inflation expectations?
The U.S. May’s inflation indicators, CPI and PPI, both “exploded.” The CPI surged 5% year-on-year, setting a 13-year high. Core CPI (Excluding the volatile food and energy data) rose 3.8% year-on-year, which also exceeded market expectations; PPI increased by 6.6% year-on-year, the largest increase since the data were available in 2010.
César PEREZ RUIZ, Head of Investment and Chief Investment Officer of Baida Wealth Management, and Christophe DONAY, Head of Asset Allocation and Macroeconomic Research, predict the core PCE of the United States in 2021 and 2022 The average inflation rate is 2.4% and 2.2% respectively. At present, there is no sign of a spiraling wage inflation, and there is no sign of consumer inflation expectations breaking off. It is expected that inflation will ease next year.
Invesco’s chief global market strategist Kristina Hooper believes that the market is beginning to believe that the Fed’s new inflation target policy means that it will remain “behind the yield curve” and tolerate Higher inflation, especially because the Fed tends to think that inflation is temporary.
Focus 2: Will the bitmap change?
The dot plot for March shows that 11 Fed officials support interest rate hikes in 2023 and 7 do not support it. However, economists at JPMorgan Chase predict that many Fed officials will change their positions and support a rate hike in 2023. JPMorgan Chase also changed its interest rate forecast, predicting that the Fed will raise interest rates in 2023.
The current U.S. 10-year and 30-year Treasury bond yields are already in MarchThe initial low level also shows that the market does not expect the Fed to tighten monetary policy because of the rapid rise in inflation.
Hooper believes that the Fed is likely to easily push up long-term yields. One possibility is that if the revised bitmap shows that interest rates will be raised earlier or more aggressively than market expectations, then the above situation may occur. If Fed Chairman Powell mentions that the Fed has begun to discuss reducing the size of debt purchases or suggests that the reduction may begin in the next few months, this can also easily push up interest rates.
Focus 3: When will we start to reduce debt purchases?
The minutes of the April meeting this year show that some Fed officials pointed out that if the US economy continues to make progress, it may be appropriate to start discussing plans to adjust the pace of bond purchases . Powell may also choose to discuss the issue of reducing the scale of debt purchases at a press conference after the meeting.
César PEREZ RUIZ, Head of Investment and Chief Investment Officer of Baida Wealth Management and Christophe DONAY, Head of Asset Allocation and Macroeconomic Research The policy of reducing the quantitative easing program.
Hooper expects that this meeting will begin to discuss the issue of reducing the size of debt purchases, which may be announced at the Jackson Hole meeting in the late summer and will be announced in the fall. Begin executing. But the market may not be ready to accept this news.
Generally speaking, the market currently generally predicts that the Fed will maintain stability this week and may raise inflation expectations. It is considered that interest rates will only be raised in 2023. In addition, the Fed may signal to the market that it is considering changing its bond purchase policy, which is expected to give a certain boost to the dollar index, but the intensity may not be too great.