China News Service, Beijing, December 16th. Title: Is it inevitable for the Federal Reserve to accelerate the Taper "governance" to raise interest rates next year?

　　Author Liu Wenwen

　　At 3 a.m. Beijing time on the 16th, the Federal Reserve announced at the last interest rate meeting this year that it would maintain the target range of the federal funds rate between zero and 0.25%.

It will begin to expand the scale of asset purchase reduction to a monthly decrease of 30 billion U.S. dollars in January next year.

　　The Fed's current policy was in line with market expectations. After the meeting, the three major U.S. stock indexes jumped collectively.

The Dow Jones Industrial Average rose 383.25 points from the previous trading day to close at 35927.43 points, an increase of 1.08%.

The Standard & Poor's 500 stock index rose 75.76 points to close at 4,709.85 points, an increase of 1.63%.

The Nasdaq Composite Index rose 327.94 points to close at 15,565.58 points, an increase of 2.15%.

　　What signals have been released from this acceleration of Taper (cutting debt purchases)?

Is it inevitable to raise interest rates next year?

Big posture accelerates Taper's "treatment" of swelling

　　At this meeting, Taper was accelerated as scheduled, the rate of reduction doubled, and inflation remained the focus of attention.

　　Fed Chairman Powell said after the regular monetary policy meeting that the rising inflation rate is the reason why the Fed has accelerated its reduction in asset purchases.

　　The meeting statement also made it clear that “inflation has exceeded 2% for a period of time” and deleted the statement about “temporary inflation”.

　　In this regard, Cheng Shi, chief economist of ICBC International, analyzed that this fully reflects the eagle side of the Fed.

With the seasonal epidemic rebounding and the labor market still not returning to full employment, the marked deterioration in the price situation has forced the Fed to double the size of the Taper to curb the negative impact of high inflation on domestic demand in the United States.

　　Cheng Shi further stated that it is worth noting that the retail sales data of the United States in November fell sharply compared with October, which reflects that persistently high inflation has begun to accelerate the weakening of the growth momentum of private consumption in the United States.

Therefore, it is imperative to accelerate asset reduction purchases.

According to the current pace, the Fed expects to complete the entire Taper in the first quarter of 2022, initially returning to the normalized range of monetary policy.

　　According to Zhang Yu, chief macro analyst at Huachuang Securities Research Institute, in order to deal with "inflation", the Fed needs to use a "big posture" to curb inflation expectations.

And this meeting is a demonstration of the "big posture". By accelerating the Taper, it is conveyed to the market that the central bank is starting to face inflation and will take measures to curb inflation, leaving more flexibility for possible future interest rate hikes.

　　Li Chao, chief economist of Zheshang Securities, said that on the whole, the Fed faces inflationary pressures and manages inflation expectations. It believes that full employment will be achieved next year to meet the requirements for interest rate hikes and the time from the end of debt purchases to interest rate hikes will not be the same as the previous one. The round is just as long; on the other hand, we are more optimistic about the subsidence of supply problems and the cooling of inflation next year.

　　"We believe that this shows that the current policy adjustments are reserved for the uncontrolled inflation of the policy initiative at any time; on the other hand, this is a signal that the Federal Reserve is able to control inflation and conduct forward-looking guidance and expectation management on the market. "Li Chao said.

Is interest rate hike inevitable next year?

　　On the same day, the dot matrix chart of the interest rate hike path in the economic forecast summary released by the Fed showed that most officials expect three interest rate hikes next year. Does this mean that multiple interest rate hikes next year and early interest rate hikes are inevitable?

　　According to Zhang Yu’s analysis, judging from the foreshadowing of the meeting, if the economy continues the current restoration progress in the first half of 2022 and there is no unexpected recession, the probability of the first interest rate hike starting in June 2022 is not low, but whether it is still possible to raise interest rates three times. Need to observe the recovery of the job market.

Powell also mentioned in the press conference that although the interest rate hike will definitely be carried out after the Taper is completed, the interest rate hike and the balance sheet reduction can be carried out at the same time, giving a signal of potential balance sheet reduction, or causing the market's expectations of the scale reduction in 2022 to heat up.

　　CITIC Securities analysts clearly predict that the Fed may raise interest rates twice within the next year. The timing of the first rate hike or the timing of the second rate hike in June 2022, and whether there may be a third rate hike. The interest rate depends on the inflation and employment situation in the United States in the second half of next year.

　　Li Chao has a different view. He pointed out that the US CPI rose further in November, with a year-on-year growth rate of 6.9%, and may further rise and exceed 7% during the year.

From the current position, it is obvious that the Fed cannot ignore the high inflation growth rate. The taper acceleration this time is essentially to reserve policy initiative to deal with inflation, and to prevent future inflation from getting out of control and causing monetary policy to slam the brakes, but reserve the initiative is not Means actual action.

　　"Considering that the risk of correction in U.S. stocks may become a constraint for the Fed to raise interest rates, the fading of U.S. inflationary pressures and the decline in economic momentum will also reduce the Fed’s motivation to raise interest rates. The actual number of interest rate hikes is likely to be lower than the current dot plot shows and still exists. The possibility of not raising interest rates." Li Chao said.

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