Strong austerity by raising three times next year
Powell recession risk not high
Balance sheet shrink to begin as early as May
Federal Reserve Chairman Jerome Powell [Photo Source = Yonhap News] The U.S. central bank, the Federal Reserve, put an end to the era of zero interest rates on the 16th.
The Fed announced that it would raise interest rates by 25 basis points in a statement released after the Federal Open Market Committees regular meeting on the same day.
As a result, the federal funds rate, the base rate in the United States, has risen to between 0.25% and 0.50%. It is the first time in three years and three months that the Fed has raised interest rates.
Fed Chairman Jerome Powell said at a news conference today that he does not believe the likelihood of a recession has increased and that he will continue to raise rates.
The possibility of a recession in the U.S. economy after the Ukraine crisis was raised by some, but this was denied.
According to a dotplot released by the Fed, members of the Fed have hinted that they will continue to raise rates at the FOMCs six remaining regular meetings within the year.
If the base rate is raised by 0.25 percentage points each time, the base rate at the end of the year will soar to 1.75 to 2.00%.
David Kelly, head of global strategy at JPMorgan Asset Management, told CNBC that this is a very aggressive plan and he hopes the Fed will remain more flexible.
Fed members expected three more rate hikes in 2023.
The New York Stock Exchange, which had maintained its uptrend on the same day, began to decline sharply after the Feds statement was released at 2 p.m., returning its gains due to concerns about the sixth consecutive rate hike.
The New York Stock Exchange, which had continued to decline, also showed the Dow and S&P 500 falling from the previous day five minutes after Fed Chairman Jerome Powells press conference began.
However, as the British Financial Times reported that Russia and Ukraine were approaching a 15-point agreement, it turned to an uptrend.
On that day, while riding the roller coaster, the Dow rose 1.55%, the S&P 500 rose 2.24%, and the Nasdaq Composite finished up 3.77%.
Investment sentiment improved as Russian President Vladimir Putin was interpreted as seeking an exit strategy, but the Ukrainian side reduced the meaning of the FTs report, saying that it reflected only the Russian side.
The fact that Chairman Powell did not mention the possibility of a 50bp rate hike in May at a press conference also had a positive effect on investor sentiment.
At the FOMC meeting, there was only one Fed member who opposed the rate hike.
There is a strong consensus within the Fed that strong austerity policies are needed to deal with inflation, which is at its highest in 40 years.
Louis Federal Reserve Bank President James Bullard, who is classified as a super hawk, hoped for a 0.50 percentage point increase this time.
In response to the unprecedented crisis of the COVID-19 crisis, the Fed, which had launched virtually unlimited quantitative easing, is now officially starting to absorb liquidity in earnest.
The Fed said the impact on the U.S. economy in relation to the Ukraine crisis was very uncertain, and predicted that it would create additional inflationary pressure in the short term and put pressure on economic activity.
Regarding the Feds balance sheet contraction, which remains the biggest uncertainty, Fed Chairman Jerome Powell said at the meeting that the scope had been finalized and the stage had come to make a final decision and implement it.
Chairman Powell disclosed the plan in relatively detail, as if he had been waiting for a related question. He said the start of the balance sheet contraction could be as early as May.
The FOMC said in a statement that it expects to begin cutting cuts in government bonds and MBS at a future meeting.
The Fed has raised its personal consumption expenditure inflation forecast for this year from 2.6% to 4.3%.
Excluding volatile energy and food prices, we revised up our forecast for core PCE inflation to 4.1% from 2.7%.
As for when inflation will stabilize, Chairman Powell said he had initially expected stabilization by the end of the first quarter, but said it will likely stabilize in the second quarter.
It has lowered its real GDP growth forecast for this year to 2.8% from 4%. Chairman Powell said that the growth rate is still high considering the potential growth rate of the US is about 1.75%.
However, investment banks continue to lower their forecasts for U.S. growth. On the 11th, Goldman Sachs lowered its GDP growth forecast for this year from 2% to 1.75%.