Interest rates are likely to rise… The key is ‘nuance’
Pay attention to whether the final interest rate will be higher than before
(New York = Yonhap Infomax) Correspondent Haram Lim = The announcement of the results of the US Federal Reserve’s monetary policy meeting is imminent. Financial market participants are paying close attention to the Federal Open Market Committee’s (FOMC) interest rate decision, statement, and dot plot.
According to the Chicago Mercantile Exchange (CME) FedWatch on the 22nd (local time), about 85% of participants in the federal funds rate futures market expected a rate hike on the day.
Only 15% of the participants insisted on interest rates being frozen. The idea of freezing interest rates, which rose sharply last week, seems to have become a minority opinion as the crisis in the banking sector has calmed down for now.
The US economy CNBC broadcast said, “Now that the extreme volatility has passed, the financial market seems to have reached an agreement that the FOMC will carry out a 25bp hike.”
The point to watch at this FOMC is the nuance of the Fed’s rate hike.
Even if the Fed does raise rates as expected, it matters whether the rate hike is hawkish or dovish.
This is expected to be confirmed in the statement released by the FOMC along with the interest rate decision.
In the meantime, the FOMC has included language in its statement that “the Committee expects that continued increases in the target range will be appropriate to achieve a sufficiently constraining monetary policy stance to return inflation to 2% over time.” .
It is important here that the phrase ‘lasting impression’ is maintained. As the European Central Bank (ECB) also scrapped its forward guidance earlier, if the Fed follows this path, it could be interpreted dovishly.
“The Fed looks set to announce a very soft 25 basis point hike, and given the current circumstances, I think it should,” the head of Srikuma Strategy, an American investment advisory firm, told CNBC.
The Fed’s judgment on the recent stressful situation in the banking sector is also noteworthy.
The Fed also releases its economic forecasts at the FOMC in March.
The dot plot, which is the outlook for interest rates seen by Fed members, as well as GDP, unemployment rate and inflation projections, will be released.
In a dot plot released last December, the Fed suggested a final rate of 5.1%. It remains to be seen whether this final rate will be revised upwards.
Fed officials, including Fed Chairman Jerome Powell, have mentioned several times that the final rate may be higher than originally planned.
Wall Street experts analyzed that although the speed of interest rate hikes was put on hold as the super-large risk of bankruptcy broke out right before the FOMC, the final interest rate could rise as expected.
Goldman Sachs, which predicted a rate freeze at this FOMC, also predicted that the final rate would rise. Goldman expects the Fed to raise rates by 25 basis points three times after freezing in March. On the dot plot in March, Goldman predicted that the final rate would rise to 5.375%.
Citigroup also criticized the market for being overly optimistic about the Fed’s decision. “The market vastly underestimates the likelihood that policy rates will rise above current levels and remain high for a long time,” said Andrew Hollenhorst, Citi’s economist. There is no reduction,” he said.
There will also be revisions to growth, unemployment and inflation projections.
Goldman expects GDP growth to be slightly revised up this year, while the unemployment rate will be revised down. He also analyzed that there is room for a slight upward revision of the inflation forecast.
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This article was served at 23:09, 2 hours earlier on the Infomax financial information terminal.
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