2023-11-09 10:57:16
Federal Reserve Chairman Jerome Powell. AFP Yonhap News
‘Policy interest rate hike ends, interest rate cut in June next year’ Financial market investors have begun their seventh bet on the U.S. Federal Reserve’s (Fed) monetary policy shift. This year, investors have repeatedly been disappointed after expecting an end to the Federal Reserve’s tightening measures. There are also concerns that expectations may be premature, given that economic conditions have not changed significantly this time. If the prediction goes wrong, the market is expected to fluctuate significantly again. According to FedWatch of the Chicago Mercantile Exchange on the 9th, participants in the federal funds rate futures market predict a 90.4% chance that the Federal Reserve will freeze the policy interest rate (5.25-5.50% per year) at next month’s meeting. The prediction of a 0.25 percentage point increase is only 9.6%. Participants are also looking forward to an interest rate cut in June next year. They predicted that the policy interest rate would fall by 0.25 percentage points in June next year with a probability of 42.1%. Investors’ expectations are growing after the Federal Open Market Committee (FOMC) meeting on the 1st (local time). On this day, expectations for an end to interest rate increases emerged as the Federal Reserve froze the policy interest rate in consideration of the rise in U.S. Treasury yields and the slowdown in inflation. Afterwards, investors also paid close attention to Federal Reserve Chairman Jerome Powell’s public event remarks scheduled for the 8th. However, as Chairman Powell did not make any remarks related to monetary policy at the event, investor expectations appear to have grown stronger.
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This is already the 7th time that investors have placed their hopes on the Federal Reserve’s monetary policy shift. Expectations so far quickly turned into disappointment, causing great confusion in the stock market, bond market, and foreign exchange market. Deutsche Bank strategist Jim Reed said on the 7th, “This is the seventh time the market has reacted to the dove forecast (favoring monetary easing). “Over the previous six times, we have seen expectations of interest rate cuts thwarted each time.” The market is confident that the prediction will be correct this time, but many people are watching with concern. This is because economic conditions have not changed significantly for the Federal Reserve to change its monetary policy direction. The Federal Reserve said at its September meeting that it would have no choice but to maintain high interest rates if the economic improvement is strong. The U.S. economic growth rate for the third quarter announced last month was 4.9% (annualized rate), a significant increase from the previous quarter (2.1%). The core personal consumption expenditures (PCE) price index increase rate was 3.7% in September, which is still higher than the Federal Reserve’s target (2.0%). Former U.S. Treasury Secretary Lawrence Summers said in a conversation with Bank of Korea Governor Lee Chang-yong on the 6th, “Inflation pressures remain and the economy is strong. This is why he said, “The market’s claim (that interest rate increases will end) is exaggerated.” Another variable is that U.S. Treasury yields are falling. The U.S. 10-year Treasury bond interest rate, which exceeded 5% per year during intraday last month, fell to 4.49% on the 8th of this month. The Federal Reserve has frozen the policy interest rate because the rise in government bond yields is replacing the effect of tightening. Lim Jae-gyun, a researcher at KB Securities, said, “If bond yields fall, the Federal Reserve may turn hawkish again (preferring monetary tightening).” Reporter Jeon Seul-gi [email protected]
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