The United States: Clear and Slowing Monetary Policy Position
2023-12-18
■ FOMC has decided to maintain the policy interest rate at 5.25-5.50%, but the outlook for policy interest rates for participants in 2024 has been lowered.
■ The speech of the Federal Reserve Chairman Powell at the press conference and the overall monetary policy stance leans towards easing.
At the Federal Open Market Committee (FOMC) meetings held on December 12th and 13th, it was decided to keep the policy rate at 5.25-5.50%. The statement regarding monetary policy continues the content of the previous meeting, but the understanding of the economy and inflation has been lowered. It still believes that although the pace of economic expansion has slowed down, it is still at a relatively high level, and inflation has begun to slow down. This implies the necessity of reducing further policy adjustments and a clearer shift towards evaluating the effects of previous monetary tightening policies.
In the quarterly Summary of Economic Projection (SEP) released, the policy interest rate outlook for participants is 4.625% at the end of 2024 and 3.625% at the end of 2025, which is a decrease from September levels. The interest rate at the end of 2026 is 2.875%, and the long-term outlook remains unchanged at 2.500%. At the end of 2024, 4.625% decreased by 0.750% compared to the current level, indicating that the number of interest rate cuts in 2024 has decreased from two per year predicted in September to three per year. Compared to the outlook in September, the main economic indicators have not changed much in terms of real GDP growth rate and unemployment rate after 2024, but the inflation rate has decreased slightly between 2023 and 2025. The Federal Reserve's confidence in the current operation of monetary policy has increased, indicating that they have become more cautious in their stance on monetary policy.
Powell, the Chairman of the Federal Reserve, acknowledged discussions about future interest rate cuts and mentioned the possibility of an economic recession in 2024, although this is not the main scenario he envisioned. In addition, the minor modification of the monetary policy statement (changing the expression "additional policy firming" to "any additional policy firming") is to indicate that they believe the likelihood of policy interest rates being close to peak levels is high and to explain this intention. Overall, the content of the press conference emphasized their intention to advance future policies more cautiously. Although the Federal Reserve insists on judging current policies based on upcoming inflation rates and other data, the overall policy stance has significantly slowed from a "hawkish pause" to a "dove pause". Next year, we will begin to plan for interest rate cuts, and the focus will shift to whether the financial market will first consider interest rate cuts.
■ The speech of the Federal Reserve Chairman Powell at the press conference and the overall monetary policy stance leans towards easing.
At the Federal Open Market Committee (FOMC) meetings held on December 12th and 13th, it was decided to keep the policy rate at 5.25-5.50%. The statement regarding monetary policy continues the content of the previous meeting, but the understanding of the economy and inflation has been lowered. It still believes that although the pace of economic expansion has slowed down, it is still at a relatively high level, and inflation has begun to slow down. This implies the necessity of reducing further policy adjustments and a clearer shift towards evaluating the effects of previous monetary tightening policies.
In the quarterly Summary of Economic Projection (SEP) released, the policy interest rate outlook for participants is 4.625% at the end of 2024 and 3.625% at the end of 2025, which is a decrease from September levels. The interest rate at the end of 2026 is 2.875%, and the long-term outlook remains unchanged at 2.500%. At the end of 2024, 4.625% decreased by 0.750% compared to the current level, indicating that the number of interest rate cuts in 2024 has decreased from two per year predicted in September to three per year. Compared to the outlook in September, the main economic indicators have not changed much in terms of real GDP growth rate and unemployment rate after 2024, but the inflation rate has decreased slightly between 2023 and 2025. The Federal Reserve's confidence in the current operation of monetary policy has increased, indicating that they have become more cautious in their stance on monetary policy.
Powell, the Chairman of the Federal Reserve, acknowledged discussions about future interest rate cuts and mentioned the possibility of an economic recession in 2024, although this is not the main scenario he envisioned. In addition, the minor modification of the monetary policy statement (changing the expression "additional policy firming" to "any additional policy firming") is to indicate that they believe the likelihood of policy interest rates being close to peak levels is high and to explain this intention. Overall, the content of the press conference emphasized their intention to advance future policies more cautiously. Although the Federal Reserve insists on judging current policies based on upcoming inflation rates and other data, the overall policy stance has significantly slowed from a "hawkish pause" to a "dove pause". Next year, we will begin to plan for interest rate cuts, and the focus will shift to whether the financial market will first consider interest rate cuts.