Minutes of the Fed meeting: It will take some time to raise interest rates, worrying that the financial market is too happy
News from the Financial Associated Press on January 5 (edited by Shi Zhengcheng)In the early hours of Thursday, Beijing time, the Federal Reserve released the minutes of the Open Market Committee (FOMC) meeting in December last year, which revealed in detail the latest research and judgment of monetary policymakers on the economy and the path of interest rate hikes, continuing to show a hawkish tone and stance.
(Source: Federal Reserve official website) In the last monetary policy decision last year, the Federal Reserve slightly lowered the interest rate hike to 50 basis points, which further increased the range of the federal funds rate to 4.25%-4.50%, and raised interest rates by 425 basis points throughout the year. Also in the economic forecast disclosed last month, the median forecast of FOMC members for the “end” of this round of interest rate hikes also rose from 4.6% to 5.1%.Means there could be at least 75 basis points of rate hikes in 2023。
Obviously, after the short-lived carnival caused by the market’s misreading of the Fed’s logic last summer, the logic of speeches of Fed officials has always been conservative, and today’s meeting minutes are no exception. After the announcement of the latest meeting minutes, the US stock market once experienced a significant dive. According to the schedule, the Fed’s next policy meeting will be held from January 31 to February 1.
What did the latest meeting minutes say?
Echoing the resolution and economic expectations, the minutes showed that participants generally agreed thatA restrictive monetary policy stance needs to be maintained until subsequent data provide confidence that inflation is steadily falling back to 2%, which itself may take some time. Given the current unacceptably high inflation levels, some participants commented that,Historical experience warns against loosening monetary policy prematurely。
The minutes also reiterated thatNone of the participants expected rate cuts starting in 2023 to be the appropriate course of action。
Most participants further said that given the current highly uncertain outlook for inflation and real economic activity, there should be continued focus on data and “flexibility” in moving monetary policy toward a more restrictive stance (rate hikes). and selectivity”.
On the outlook for inflation, participants said October and November showed a “welcome” decline in inflation growth, but stressed that more progress is needed to be confident that inflation remains on a sustained downward trajectory. Participants generally pointed out thatUncertainty related to the economic outlook remains high, and risks to the inflation outlook remain tilted to the upside. Participants also noted that price pressures may ultimately prove more persistent than expected.
After last year’s summer turmoil, Fed officials also used the meeting minutes to slam the market not to interpret the policy stance too aggressively. Participants stated thatSince an important way for monetary policy to have an effect is through financial markets, any “unwarranted easing” in financial markets, especially due to a misunderstanding of the committee’s response mechanism, may complicate the Fed’s efforts to maintain price stability.
Some participants also emphasized the need to make it clear to the market thatThe slowdown in the pace of rate hikes does not mean that the Committee’s goal of achieving price stability has weakened, or that inflation has continued to be on a stable downward path。
Regarding the minutes, Derek Tang, an economist at the Lawrence Meyer Institute for Policy Research in Washington, interpreted that the Fed could not see the “light at the end of the tunnel” on inflation, and they were so wary of “unfounded” financial easing that 2 The scale of interest rate hikes in July should tend to remain at 50 basis points.
On the question of an economic slowdown, participants “observed a marked slowdown in the growth of economic activity in 2022, particularly in interest rate-sensitive sectors such as real estate”. While economic growth picks up in the second half of 2022, the rate of expansion in economic activity in 2023 will be “well below trend.” However, participants also said that below-trend GDP growth would help to better balance aggregate demand and aggregate demand, thereby depressing inflation.
In the discussion of the outlook for consumer demand, Fed officials also showed different positions. Participants believed that consumer spending growth in September and October last year was stronger than the Fed’s expectations, which seemed to be supported by a strong labor market and excess savings during the epidemic. Some participants believed thatExcess saving seems to be able to continue to support consumption for a whilebut some participants expressed opposition.
This section of Fed officials believes thatThe excess savings of low-income families seems to be declining faster than expected. At the same time, the bulk of the excess savings originally belonged to high-income families, and it is very likely that they will continue to be stored in the bank in the future.. It was also pointed out that,Budgets for low- and middle-income households are already stretched, many consumers are shifting spending toward cheaper alternatives, and more households are turning to credit to support consumption。
The Fed in 2023 will get more complicated
Unlike the prospect of Fed officials maintaining a united front in the process of raising interest rates in 2022, the Fed’s decision-making in 2023 has shown a complex side.
Although the Federal Reserve has been emphasizing “insist on raising interest rates”, the composition of the Open Market Committee in 2023 has brought some different guesses to the market.
As the New Year’s bell rings, Brad (St. Louis Fed), Mester (Cleveland Fed), George (Kansas City Fed), and Collins (Boston Fed) surrender their voting rights. The first three belong to the hawk camp. Among the four people who replaced him, only Kashkari of the Minneapolis Fed is a clear hawk, Logan (Dallas Fed) and Harker (Philadelphia Fed) are both centrists, and the newly appointed Chicago Fed President Gu Although Elsby has not expressed a policy stance, the former chairman of the Obama administration’s Council of Economic Advisers is considered a dove.
In addition to the local Fed chairmen, several Fed directors replaced by the Biden administration are also considered dovish. Like the New York Fed chairmen, they are permanent voters of the FOMC.
Overall, Powell is likely to encounter more dissenting opinions in 2023 compared to the amicable Fed in the past few years, especially as the economic downturn gradually emerges.