China News Service, Beijing, December 12 (Reporter Xia Bin) The Federal Reserve's last interest rate meeting in 14 has ended, and the target range of the federal funds rate has remained unchanged at the level of 2023.5% to 25.5%, which is in line with market expectations.
This is the third consecutive time that the Federal Reserve has announced that it will keep the federal funds rate unchanged, and judging from the signal released by this meeting and Fed Chairman Powell's statement, it should be a foregone conclusion that the Fed will not raise interest rates this time, and there is a high probability that interest rate cuts will start next year.
The Fed's current round of tightening should come to an end. Ming Ming, chief economist at CITIC Securities, said that the addition of the word "any" to the statement of the Fed meeting "in deciding whether any additional tightening is needed" indicates that the Fed is close to or at the end of its tightening policy.
Powell told reporters after the meeting that the current policy rate is likely to be at or near the peak of the current tightening cycle. The Fed will remain committed to bringing inflation back down to its 2% target and anchoring medium- to long-term inflation expectations at that level.
Ming Ming said that the dot plot also shows that all Fed officials believe that it is appropriate not to raise interest rates again, and if there is no unexpected shock, the Fed's rate hike may have ended.
"Barring exceptional events, the Fed may have completed raising interest rates, and the focus for now will be on when to start cutting rates. I don't think the Fed will necessarily wait until growth deteriorates significantly before it starts cutting rates, all it needs to see is continued progress on the disinflationary front. Zhao Yaoting, global market strategist for Invesco Asia Pacific (excluding Japan), said.
Cheng Shi, chief economist of ICBC International, believes that although Powell is still firmly cautious about future inflation, the political factors of fiscal withdrawal and the U.S. election will accelerate the pace of interest rate cuts by the Fed in 2024.
Cheng Shi said that with the support of large-scale fiscal expansion, although the U.S. economy is still showing strong resilience for now, entering 2024, as the U.S. election approaches, the Republican Party may further pressure the Democratic Party through fiscal contraction. For the Democrats, it is necessary for the Fed to cut interest rates more quickly to hedge against the negative effects of fiscal withdrawal, both in terms of economic stability and political support. Considering that the positives of fiscal expansion in 2023 will largely fade in the second quarter of 2024, the Fed may signal a rate cut as early as May.
Ming noted that the dot plot shows that all Fed officials believe that interest rates will remain unchanged at the end of this year and that the rate cut will occur in 2024, with a rate cut forecast of 75 basis points, an increase of 2023 basis points from the September 9 rate cut.
"Powell's decision to cut interest rates will mainly rely on a series of U.S. economic data, and if the data deteriorates, interest rates will be cut at the right time, and dovish speeches will push U.S. stock indices higher and U.S. Treasury rates lower." Mingming.
After the results of the Federal Reserve's interest rate meeting were announced, the RMB rose in response to the foreign exchange market. As of 12:14 on December 14, the onshore and offshore RMB real-time exchange rates against the US dollar have increased by about 400 basis points.
Ding Shuang, chief economist of Greater China and North Asia at Standard Chartered Bank, predicts that high interest rates in the United States will remain high until the middle of next year, while China will maintain a loose monetary policy until the middle of next year, and there will be interest rate cuts. Therefore, the monetary policy divergence between China and the United States will still exist in the first half of next year. If the Fed starts cutting interest rates in the third quarter of next year, it will have an impact on Treasury yields and the dollar index, which may weaken.
Ming Ming believes that considering that the current U.S. economy, whether it is consumption, investment, manufacturing and non-manufacturing activities, has shown signs of cooling, and the policy interest rate level has entered the terminal level, it is expected that the next 10-year U.S. Treasury interest rate may continue to weaken, and there is a possibility of a downward breakthrough of 4%.
Ding Shuang predicts that the real reduction of RMB pressure may not be until the second half of next year. Although China's interest rates are still low in the second half of the year, if China stops cutting interest rates and the United States starts cutting interest rates, this is also a divergence from another perspective. "Although the absolute value is still higher than the interest rate in the United States is higher than that of China, the pressure on capital outflows will be reduced in the case of narrowing interest rate differentials, so we predict that the exchange rate of the yuan (against the dollar) will be around 7 by the end of next year." (ENDS)