(Original title: Federal Reserve megaphone: There is little suspense to cut interest rates and raise interest rates in February. Terminal interest rates will become a key issue)
News from the Financial Associated Press on January 24 (Editor Zhao Hao)Last Sunday (January 22), Nick Timiraos, a reporter known as the “Fed microphone”, wrote an article saying that Fed officials are preparing to further slow down rate hikes and will debate terminal interest rates.
Next week, the Federal Reserve will start a two-day monetary policy meeting, and is scheduled to announce a policy decision at 03:00 Beijing time next Thursday (February 2). In half an hour, Federal Reserve Chairman Jerome Powell will hold a monetary policy press conference.
At present, Fed officials have entered a “silent period” – unable to speak or attend events within 10 days before the announcement of the resolution. Timiraos noted that based on recent speeches and interviews by officials, they have largely agreed to further slow the pace of “50 basis point hikes” to“25 basis points”。
According to CME Group’s Fed Watch tool, the market currently expects that the probability of the bank raising interest rates by 25 basis points at the February meeting exceeds 99%, which means that the market has almost fully digested this expectation. At its December meeting, the Fed had already slowed the pace of rate hikes to 50 basis points from 75 basis points each.
Reducing the pace of rate hikes to the more traditional “25 basis points” would give officials more time to assess the impact of previous hikes, which could be used as a basis for deciding when to pause future hikes, Timiraos wrote. clue.
Last week, Fed Vice Chairman Brainard pointed out that this policy logic is very applicable to the current situation. “Keeping interest rates small in a high interest rate environment allows us to absorb more data while maintaining Policy rates are sufficiently restrictive.”
Timiraos believes that officials will show their determination to continue to tighten monetary policy in the February policy statement, but in fact have already begun to study the issue of when to pause interest rate hikes. However, they are not expected to provide precise path guidance as future economic data remains uncertain.
Timiraos also wrote that the Fed will be roughly divided into two factions: Some of those who predict that the US economy will not weaken will call for continuing to maintain “25 basis points of interest rate hikes” for a period of time; They argue that high interest rates are already working, they just have to wait a while.
Although some officials reiterated that interest rates may rise above 5%, the market did not buy it. The Fed observation tool mentioned above shows that the mainstream of the market does not think that the terminal interest rate will fall at 4.75%-5%.
Previously, this year’s FOMC’s rotating voting committee and Philadelphia Fed Chairman Harker also advocated the ability to observe the continued impact of the new crown epidemic and the Russia-Ukraine conflict on inflation, and said that there is no need to let the labor market, which is a positive economy, take risks. Some officials, including Harker, also believe there should be more flexibility on interest rates.
Recently, Brainard said that the United States is not experiencing the wage-price spiral of the 1970s. On Friday, the U.S. Department of Labor will release the PCE price data report for December 2022. Year-over-year changes in the core PCE price index, the Fed’s preferred inflation measure, have a big impact on policymakers.