The Fed's meeting on interest rates revealed three changes. What does it mean to maintain easing policies?

　　(Financial World) The Fed's meeting on interest rates revealed three changes. What does it mean to maintain easing policies?

　　China News Service, Beijing, September 17 (Reporter Xia Bin) In the early morning of the 17th Beijing time, the Federal Reserve announced the resolution of the September interest rate meeting to maintain the benchmark interest rate in the range of 0% to 0.25%, and the speed of quantitative easing also remained unchanged. Basically in line with market expectations, this last interest rate meeting before the US presidential election still revealed three changes.

　　First, the time to maintain the current interest rate range has been extended.

The dot plot released at this meeting shows that the Fed is expected to maintain the current 0% to 0.25% interest rate level until the end of 2023, while the dot plot of the June meeting on interest rates shows that interest rates will remain unchanged until 2022.

This means that the Fed will not raise interest rates in the next three years and will maintain an extremely loose monetary policy for a longer period of time.

　　Second, the economic outlook this year is expected to improve.

The Federal Reserve raised its 2020 GDP forecast for the United States to -3.7%, which has been significantly higher than the previous value of -6.5%. However, affected by the uncertainty of economic recovery, it lowered its GDP forecast for 2021 and 2022 to 4.0% and 3.0. % (Previous value 5.0%, 3.5%), and the US economic growth is expected to be 2.5% in 2023.

　　Third, inflation tolerance will increase under the new target.

Fed Chairman Powell announced the "average inflation" target in August, and this meeting is the "first show" after the birth of the new target. In the description of inflation, the Fed included the previous amendments to the two-pillar framework, indicating that the committee will Strive to make inflation moderately higher than 2% for a period of time so that the long-term average inflation can reach 2%.

　　"Maintaining easing is a positive sign." Xie Yaxuan, chief macro analyst at China Merchants Securities, believes that this meeting has strengthened the Fed's expectations of maintaining a loose low interest rate monetary environment for a long time. During the initial economic recovery phase, changes in monetary policy will Slightly flat, but not talking about tightening is a more positive signal, which may be a gap with the market’s linear expectations for easing.

　　He further said that in other words, at this stage, it is more difficult to expect additional liquidity easing to give asset prices a greater boost, and US stocks may continue to show high volatility.

　　After the announcement of the content of the interest rate meeting, the Dow Jones and S&P 500 indexes rose rapidly, hitting intraday highs, and then retreated their gains in late trading. On the same day, the technology sector dragged down the U.S. stock market and bank stocks rose.

　　Guo Jiayi, chief exchange rate analyst at Industrial Research, pointed out that the content of the meeting showed the Fed’s restraint and did not release additional signals of easing. There is still a lack of details on the assessment methods of average inflation and maximum employment.

The market was a little disappointed. U.S. stocks fell in late trading, long-term U.S. Treasury interest rates rose, the U.S. dollar index rebounded, non-U.S. currencies were under pressure to varying degrees, and precious metals also fell from their day highs.

　　Guo Jiayi particularly emphasized that "maintaining growth" has in fact become the Fed's top priority.

Although the Fed adheres to the dual goals of inflation and employment, it will allow the periodical overshoot of inflation in the future, and low unemployment is no longer a necessary condition for raising interest rates, but requires a comprehensive assessment of the employment gap.

"This means that the Fed is actually pursuing a higher economic growth rate."

　　Regarding changes in economic forecasts, Zhang Yu, chief macro analyst at Huachuang Securities, believes that economic forecasts imply a decline in real interest rates. Specifically, the Fed can stimulate inflation to lower real interest rates while maintaining nominal interest rates unchanged. Evasion of the zero lower limit of interest rates restricts monetary policy space and brings further stimulus to the economy.

　　What is the impact on the exchange rate?

Xie Yaxuan believes that the Fed's extremely loose monetary policy is an important trigger for the weakening of the U.S. dollar, and that the Fed's maintenance of easing will help continue this trend.

Although the U.S. dollar may rebound in the short term due to differences in the epidemic in Europe and the United States, it is expected that the U.S. dollar index will weaken and the renminbi will appreciate in the mid-term under the background of gradual global recovery and easing Fed policy.

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