The “most important Fed meeting of the year” resolution will be announced soon.
At 2:00 a.m. Beijing time on November 4th, the Federal Reserve will announce the interest rate resolution, and Fed Chairman Powell will hold a press conference after the resolution as usual. The market generally expects that the Fed will take action on “cutting debt purchases” this time.
According to a Bloomberg survey of economists, nearly two-thirds of people expect debt reduction to In addition to “progress” has been basically satisfied, there is another issue that cannot be ignored-inflation is somewhat “out of control.”
The latest US September personal consumption expenditure price index (PCE) rose 0.4%, up 4.4% year-on-year, which was the fastest increase since January 1991 speed. Excluding food and energy costs, the US core PCE in September increased by 0.2% month-on-month and 3.6% year-on-year, which was consistent with the year-on-year growth rate in August and continued the highest level in nearly 30 years.
Will interest rates be raised early?
Fed Powell said at the Senate Banking Committee hearing in September this year that the United States still has a long way to go before reaching maximum employment. The Fed has almost met the conditions for the purchase of reduced-weight bonds. Even if the scale of bond purchases is reduced, it will increase its easing policy by the middle of next year. The reason for this situation in the global investment market is that investors expect the Fed to raise interest rates earlier than expected.
At the same time, Chairman Powell said at a September press conference that the Fed “may announce the reduction in debt purchases at the next policy meeting at the earliest” and does not rule out waiting longer Possibility of time to restart. And the Fed’s “next policy meeting” is this meeting.
Powell introduced at the time that the committee also discussed suitable conditions for reducing debt purchases. “Although no decision has been made yet, the participants generally believe that as long as the economic recovery is still on track, it may be appropriate to end the process of gradual reduction in debt purchases by the middle of next year,” Powell said. Powell further explained that even after the balance sheet stops expanding, the Fed’s holdings of long-term securities will still maintain a loose market situation, and reducing the pace and speed of asset purchases will not be a direct signal of whether or not to raise interest rates. The conditions that need to be met to raise interest rates are “different and more stringent from reducing debt purchases.” At least, interest rates will not be raised until the end of the reduction.
Looking ahead, Zhao Yaoting, a global market strategist for Invesco Asia Pacific (excluding Japan), predicts that inflation will continue to remain high and begin to fall in mid-2022. Although high prices may continue to be the focus of the market in the next quarter, it will not be permanent because it is affected by several macro conditions, such as increased productivity through innovation and technology, and a slowdown in global population growth. In the long term These factors should be able to control inflation. In addition, reducing fiscal deficits and tightening monetary policy in the next few quarters should also become a countervailing force. Compared with 2021, fiscal support in 2022 will be significantly reduced. Major central banks should stop purchasing assets in the middle of next year, and the Federal Reserve will raise interest rates in mid-2022 at the earliest.
The impact of reducing bond purchases on global investment markets
The scale of asset purchases will be reduced in mid-December, and the asset purchase plan will be terminated around the middle of next year. At the September meeting, the Federal Reserve specifically discussed plans to gradually reduce the monthly purchases of US$10 billion in U.S. Treasury bonds and US$5 billion in institutional mortgage-backed securities. Fed officials generally believe that as long as the economic recovery is on the right track, it may be “appropriate” to end the scaled-down asset purchase program around the middle of next year.
However, New York Fed President Williams recently admitted at the third Bund Summit that up to now, the Fed has not used mathematical formulas or specific algorithms to explain what is “Average inflation target”, in his view, this new framework is a forward-looking concept to a large extent, “an anchor level consistent with the two long-term goals of maximum employment and price stability is the most important.”
“The Fed has missed the best time to reduce debt purchases.” Kevin Warsh also said bluntly. He believes that easy monetary policy should be withdrawn when the economy is at its best. In the past 100 days, the United States has experienced rapid economic growth and loose monetary and fiscal policies. This is rare in the history of the United States economy. “And now, the rate of economic improvement has slowed…Although the opportunity for reduction still exists, the difficulty will increase every month.” His view also further confirms that inflation disturbances may be one of the reasons the Fed is eager to reduce debt purchases. .