Federal Reserve Chairman Jerome Powell (Jerome Powell) speaks at a press conference after the Federal Open Market Committee (FOMC) meeting in Washington on January 29, 2020.
Andrew Haller | Bloomberg | Getty Images
The Fed does not expect inflation to continue for several years, and it is willing to keep interest rates at zero even after inflation rises.
After the Fed’s post-conferencing statement and the latest economic forecast, the stock market initially surged, indicating that it will maintain zero interest rates at least as expected by 2023. When Fed Chairman Jerome Powell gave a briefing to the media, the stock market gave up its gains and said that the Fed’s guidance was strong and “strong.”
“He is a great and powerful country of Oz. Investors have been deceived. They think it makes sense to strengthen forward-looking guidance, but when they look behind the scenes, they realize that the Fed has done nothing and the market has fallen. ,” Michael Arrone said. Strategist at State Street Global Advisors.
Powell said that after the Fed plans to temporarily maintain its asset purchases at current levels, Treasury bond yields will rise slightly. Some bond market experts have been expecting the Fed to increase the purchase of Treasury bonds, but Powell did not promise to do so. The 10-year U.S. Treasury bond yield rose to 0.695%.
Powell said: “We will continue to monitor developments and prepare to adjust our plans appropriately.”
But the market found that dovish was the guidance of the Federal Reserve. In the Fed’s latest forecast, the core inflation rate is expected to remain low and will not reach the Fed’s 2% target until 2023. At the same time, the job market is expected to improve until the unemployment rate will reach 4% in 2023, which is lower than the unemployment rate. The longer running speed is 4.1%.
Jon Hill, senior fixed-income strategist at BMO, said: “This is dovish-interest rates are lower, stocks are longer, stocks are more, and the dollar is weaker.” “The Fed says we won’t be in 2023 or Starting to raise interest rates in 2024… What they mean is that these are our goals. We expect to barely reach their goals, and even then, they will not raise interest rates.”
The Fed announced its policy changes last month, and now it will keep the inflation rate above the target for a period of time before it starts raising interest rates. However, according to the main trend predicted by the Fed, the Fed expects that the core inflation rate will be less than 2% by 2022. It expects that the PCE core inflation rate will be between 1.3% and 1.5% this year and 1.6% to 1.8% next year. By 2023, this rate will reach 1.9% to 2%.
However, AB economist Eric Winograd said Powell may have weakened the dovish message he sent.
Winograd said: “He pointed out that, as stated in the statement, over-rating inflation for a period of time means that they have not targeted the overage for a period of time. Therefore, if it does not last, how long will the period of time last? “This kind of inaccuracy is a problem that the committee must resolve to reap the full benefits of the framework change. It is not a coincidence that the positive stock market has turned negative after the chairman’s comments.”
Powell said that the Fed expects that inflation will eventually improve.
He said: “This is very strong forward-looking guidance, and we think it will be lasting guidance, which will provide important support to the economy.”
Although some Wall Street strategists and investors believe that inflation may become a problem, the Fed said it is more concerned about inflation.