Federal Reserve Update
Sign up for MyFT Daily Digest to be the first to know about Federal Reserve news.
A growing number of Federal Reserve officials expect interest rates to rise next year as the central bank prepares to withdraw its massive stimulus program in early November.
At the end of a two-day meeting on Wednesday, the Federal Open Market Committee kept its key interest rate in the rock-bottom range of 0 to 0.25 percent when the interest rate was once quickly converted into a tight monetary policy. Lifting
The new estimates suggest that at least one more interest rate was forecast by officials in June than expected in 20223, bringing the total to at least three, indicating that the U.S. economic recovery is moving faster than expected. Earlier in the summer, most Fed officials predicted at least two interest rate hikes in 2023.
Fed officials were evenly divided on the possibility of raising interest rates in 2022, with nine forecasting to be closed by the end of next year and the remaining nine to be closed by 20223. In June, only seven officers pencilled the rate increase the following year.
According to estimates, at least three more interest rates are expected to rise in 2024.
With the accelerated period of interest rate hikes there was a clear indication that the Fed would begin to reverse the $ 120bn asset purchase program this year that it launched to accelerate financial markets and the economy at the start of the epidemic.
The Fed promises to buy treasury and agency mortgage-backed securities at that pace until it sees “significant further progress” towards inflation with an average of 2 percent and maximum employment. On Wednesday, it acknowledged progress toward those goals.
The Fed said in a statement that “if progress continues as expected, the committee will consider that a moderation in the pace of asset purchases may be approved soon.”
The Fed’s new economic context suggested higher-than-expected inflation in June, when the central FOMC participant saw key measures at 3 percent in 2021 and 2.1 percent in 2022. Now, those estimates have risen to 3.7 percent and 2.3 percent, respectively. The unemployment rate will remain stable at 4.8 percent this year, slightly higher than the June forecast, when GDP growth is expected to be moderate.
Fed officials see the economy expand 5.9 percent this year, down from 3.8 percent in 2022 compared to 7 percent in June.
The Fed meeting comes at a weak time for the financial markets, which faced the most sales this week, amid concerns over a possible transition from the liquidity crisis to the world’s most indebted developing China’s Evergrand.
The reactions in the Treasury market were modest, the yield curve slightly flat. The two-year yield, which was consistent with interest rate expectations, was slightly higher, and advanced faster than the 10-year yield, which tracks economic growth expectations.
US stocks rose, the blue-chip S&P 500 reached a session high, up 1.34 percent.
The dollar index, which weighs the greenback against a basket of six rival currencies, was slightly lower.
“As far as we can tell, the core part of the committee has been largely ruthless in terms of rates,” said Richie Tuyazon, Capital Group’s portfolio manager.
Explaining why the rise in response to the state statement has increased, analysts say – the equity market was in danger of a hockey surprise and when it didn’t come, stocks rallied in relief. “We are moving towards the expected decline and the market is responding as such,” Tuajon said.
In addition to Kate Dugwood in New York