Fed Chairman Powell
at 3 a.m. Beijing time on December 16, the Federal Reserve’s Open Market Committee announced that the target range of the federal funds rate will remain unchanged at 0-0.25%, and at the same time it will reduce the monthly bond purchase scale from the original Doubled the 15 billion U.S. dollars to 30 billion U.S. dollars, which means that the time to complete debt reduction will be advanced from June to March next year.
Fed Chairman Powell said at a press conference after the interest rate decision that the Fed is in a very advantageous position in terms of interest rates, inflation and a strong economy. The Fed will discuss at a future meeting when to end its debt reduction policy and when to raise interest rates. The time from the end of debt reduction to interest rate hikes is unlikely to be as long as the previous cycle. If necessary, the Fed will prepare to raise interest rates. In response to the market’s criticism of the Fed’s slow actions, Powell said he does not think the Fed is behind the situation.
Regarding the level of inflation, Powell emphasized that the imbalance between supply and demand related to the epidemic and economic reopening continues to cause inflation to rise, and bottlenecks and supply constraints limit production to higher levels in the near future. The speed of response to demand. These problems are bigger than expected, last longer, and are exacerbated by the epidemic. Therefore, the headline inflation rate is much higher than the Fed’s long-term target of 2%, and it is likely to continue into next year. Although inflation is mainly related to the chaos caused by the epidemic, price increases have now spread to a wider range of goods and services. Wages have also risen rapidly, but so far, wage growth has not been the main reason for the increase in inflation. As a result, the Fed’s inflation expectations have fallen from 5.3% this year to 2.6% next year, a trajectory that is significantly higher than the September forecast.
Regarding debt reduction, Powell said that at today’s meeting, the Fed also decided to double the rate of reduction in asset purchases. Beginning in mid-January, the net asset purchases of Treasury bonds and 10 billion US dollars of institutional mortgage-backed securities will be reduced each month. If there are broad expectations of economic development, similar asset purchases may be made every month, which means that the Federal Reserve’s securities holdings will stop increasing in mid-March, a few months earlier than expected in early November. Due to rising inflationary pressures and the labor market rapidly strengthening, the economy no longer needs more and more policy support. In addition, completing asset purchases faster will better position policies to deal with various possible economic outcomes. If the economic outlook changes, the Fed is still ready to adjust the pace of purchases. which isAfter the balance sheet stops expanding, the Fed’s securities holdings will continue to promote a loose financial environment.
Regarding the interest rate hike stance, Powell believes that it is inappropriate to raise interest rates while debt reduction is still in progress. The Fed has not yet made a decision to stop raising interest rates for a period of time after the end of debt reduction. It will discuss when to end its debt reduction policy and when to raise interest rates at future meetings, and it may raise interest rates before full employment is achieved. The time from the end of debt reduction to interest rate hikes is unlikely to be as long as the previous cycle. However, this interest rate forecast does not mean that the Fed has a plan to raise interest rates.