The US Federal Reserve (Fed) will announce its resolution at 2 am in Taiwan on Thursday, and the market will focus on the clues that Chairman Powell has released for the September meeting.
The Fed is widely expected to raise interest rates by 75 basis points (3 yards), raising the target range of federal funds to 2.25-2.50%, and the meeting after this year may continue to raise interest rates. But analysts believe Powell may not be too specific about the extent of rate hikes at the September meeting and beyond to preserve some flexibility.
The Fed’s rapid rate hikes this year are rare in history, and the current inflation and economic growth outlook is full of uncertainty, with two inflation and two employment reports to watch the economy ahead of the Sept. 20-21 meeting.
“We expect Fed officials to keep the open option and avoid any strong guidance,” Goldman analysts said.
Observer Larry Meyers, a former Fed governor, predicted that Powell would likely avoid making a specific commitment to a rate hike in September, while trying to get the market to expect a gain of “probably two or three yards, not four.”
Meyers also predicted that Powell would discuss an “inflation threshold” that could slow the pace of tightening, paving the way for a halt to rate hikes.
Ball has publicly hinted at a possible rise before every meeting this year, including hinting at a 3-yard gain in July. However, on the last Friday before the June meeting, the US unexpectedly released the fiery consumer price index (CPI) for May, which made the Fed’s actual increase of 3 yards higher than the 2 yards estimated at the May meeting, although the 3 yards had been reported beforehand. wind sound.
After that, the market once expected a 4-yard increase in July due to the explosive annual growth rate of CPI in June, but policymakers have played down this possibility.
That has led analysts to question the Fed’s “forward guidance” policy, as policymakers could be stuck on a course of action that has been issued but is no longer favorable in the future amid uncertainty about the outlook for inflation and interest rates high.
“If it were me, I would try to avoid predicting the rise in the next meeting or two,” said William English, a professor at the Yale School of Management and a former Fed economist.
Karim Basta, chief economist at III Capital Management, said a sudden change at the last minute is not ideal and could have been avoided if Ball hadn’t given clear guidance to the market first.
Some central banks have also recently raised rates more aggressively than they had originally guided the market to expect. The European Central Bank (ECB) last week raised rates by 2 percent instead of 1 as originally implied, and the Bank of Canada (BoC) raised interest rates by 4 percent earlier this month, instead of the market’s forecast of 3 percent. There were media reports at the time discussing that the concept of “forward guidance” was dead.
It will be difficult to issue forward guidance if policymakers have not reached consensus among themselves on an increase. Fed officials last month broadly agreed to raise rates to at least 3 percent this year, but some recently said it should rise closer to 4 percent.
Former chairman Bernanke said in 2003: “Ambiguity has its uses, but it is usually suitable for a non-cooperative game like poker. Monetary policy is a game that requires cooperation, and the point is to make financial markets stand on our side. On this side, let them do some work for us.”