Fed raises rates for first time since coronavirus outbreak
Steep tightening hints at 6 more hikes this year
Start shrinking the balance sheet as early as May
Powell sees inflation upside risk
However, the possibility of an economic downturn has been raised several times.
Powells U.S. economy is strong… The labor market is tight [New York = E-Daily Correspondent Kim Jong-nam] The US Federal Reserve raised the key interest rate for the first time in three years and three months. After ending the money loosening after Corona 19, it returned to austerity. At the same time, the Fed announced that it could start shrinking its balance sheet as early as May. It hinted at a steep tightening of money lines throughout the year.
However, Chairman Jerome Powell addressed the market several times by stating that “the US economy is still strong,” while citing the uncertainty of the Ukraine crisis and the upside risk of inflation.
Federal Reserve Chairman Jerome Powell.
Fed raises rates for first time since coronavirus
The Fed announced at its regular meeting of the Federal Open Market Committee held on the 15th and 16th that it would raise the benchmark interest rate by 0.25 percentage points to 0.25 to 0.50%. St. Louis Federal Reserve Bank President James Bullard, a “hard hawk,” said the rate should be raised by 0.50 percentage points.
It is the first time in three years and three months since December 2018 that the Fed has raised the benchmark interest rate. This is the first adjustment since the base rate was lowered to zero in 2020 due to the COVID-19 pandemic.
The Fed is expected to continue tightening its policy throughout the year, starting with this hike. According to the economic outlook and dot chart released by the Federal Reserve, five out of 16 FOMC members predicted a seven-time rate hike this year. is the highest proportion. The Fed has set its benchmark interest rate forecast for the end of the year at 1.9%. Assuming that there is only one increase of 0.25 percentage points, this is the speed at which it can raise at every six FOMC meetings remaining this year. The possibility of a “big step” of raising 0.50 percentage points at a time is not small.
In addition, there were 5 members each who raised the 9th and 6th raises this year. One committee member suggested that the rate should be raised to 3.00-3.25% this year.
At the time of the meeting in December of last year, the inside of the FOMC was inclined to raise three times this year, but it has increased dramatically in just three months.
The reason for this tightening is higher-than-expected inflation. In its economic outlook, the Federal Reserve raised its forecast for US personal consumption inflation inflation this year to 4.3% from 2.6% three months ago. For next year, it will be raised from 2.3% to 2.7%. In a statement on monetary policy direction, the FOMC said, “Russian invasion of Ukraine is causing tremendous economic difficulties. will give,” he analyzed.
The Fed also lowered its real GDP growth forecast for this year from 4.0% to 2.8%. This also seems to have taken into account the shock wave of the Ukraine crisis. The unemployment rate remained unchanged at its previous estimate of 3.5%.
Powell says US economy is still strong
In a press conference that followed, Chairman Powell made it clear that the focus of future policy was to catch prices. “It seems it will take longer than expected to get back to our price stability target,” he said. Regarding the possibility that steep austerity measures could lead to higher unemployment, he said, “we are focused on lowering inflation to achieve price stability.”
Chairman Powell also said the plan to shrink the balance sheet would be “announced at a later meeting”. This means that the balance sheet will be reduced, in other words, quantitative tightening, starting at the next regular meeting of the FOMC, scheduled for May 3 or 4, at the earliest. The balance sheet shrinking is a major tool for tightening along with the base rate hike. The Feds current balance sheet is more than $8.9 trillion due to continued quantitative easing since the COVID-19 pandemic. the greatest ever
He also said, “If more aggressive monetary tightening is needed in the future, the rate can be increased. It is read to mean that monetary policy will be flexibly taken in response to changes in circumstances. Powell said the impact of the Russian invasion of Ukraine on the US economy was “very uncertain”.
However, he did draw a firm line about the possibility of a future recession in the US economy. “I dont see a particularly high chance of a recession,” he said several times, adding that “the US economy is very strong.” “The labor market is extremely tight,” he said. The fact that he emphasized this from the beginning of the press conference is interpreted as implying that even if austerity measures were taken, it would not dampen economic growth.
Accordingly, the three major indices of the New York Stock Exchange continued to rise during Powells press conference.
