Title: Federal Reserve Stands Still on Interest Rates, Maintaining “Dovish” and “Hawkish” Attitude
In a highly anticipated announcement, the Federal Reserve chose to maintain its benchmark interest rate unchanged in September. The decision to “stand still” was in line with market expectations, as the Fed’s target range for the benchmark interest rate remains at 5.25% to 5.50%.
The Federal Open Market Committee (FOMC) expressed its concerns over inflation risks in a policy statement. It acknowledged the solid pace of economic activity and noted that employment growth has moderated but remains strong. This cautious approach to inflation indicates the Fed’s commitment to strike a balance in its monetary policy.
Wen Bin, chief economist of China Minsheng Bank, analyzed that although August saw inflationary pressures due to energy costs, core inflation and labor market indicators have been cooling down. This aligns with the Federal Reserve’s desired direction for the U.S. economy, reducing the urgency to raise interest rates.
However, the latest dot plot and Fed Chairman Powell’s speech conveyed a more “hawkish” tone, suggesting that the current high interest rates may persist for a longer duration. The dot plot, which presents FOMC members’ expectations for future policy, indicates that the federal funds rate could peak at 5.5% to 5.75% by the end of 2023. It also suggests that interest rates will remain high beyond 2024.
During a press conference, Chairman Powell clarified that while the current monetary policy stance is restrictive, the decision to keep interest rates unchanged does not imply that the Fed has reached its desired level of restrictiveness. Powell emphasized that the Federal Reserve will raise interest rates again under appropriate circumstances but will act cautiously based on data and risk assessment.
The Federal Reserve’s dual “dovish” and “hawkish” stance is aimed at managing expectations to prevent drastic market fluctuations. By intentionally leaving room for interpretation, the Fed seeks to maintain stability during interest rate adjustments.
It is worth noting that the dot plot and Powell’s statements may serve as a guide to influence expectations rather than concrete indicators of future actions. Analysts from CICC suggest that the adjustment range within the dot plot is substantial, demonstrating the potential for shifts in expectations within a single quarter.
As the interest rate hike cycle approaches its final stages, the Federal Reserve is expected to exercise more caution in its monetary policy decisions. The decision to raise interest rates further during the year remains uncertain and contingent upon the performance of subsequent data.
Wen Bin predicts that as the end point of interest rate hikes approaches, the Federal Reserve will prioritize cautious decision-making. The central bank is likely to keep the policy unchanged more frequently until there is sufficient data to confirm the economic situation and avoid potential policy errors resulting from misjudgment.
The securities market should note that the information presented in this article is for reference only and does not constitute specific investment advice. Investors should assess risks independently.
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