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Yesterday, the US Federal Reserve announced the raising of interest rates from to 2.00%~2.25%.
Most Fed officials agreed (12 people out of 16) in principle to raise the rate, in line with market expectations, and according to the Dot Plot, the expected interest rate in 2019 & 2020 is 3.2% and 3.6% respectively, which is still 4-5 hikes from today’s level.
Although the Dot plot provides the information for the year 2021 as a “long-term” projection, from personal experience, this data is much less important to pay attention to as it is so far away from now. We all know that the further out the predictions, the more uncertainty it has surrounding it, similar to that of weather forecasts.
In summary, if we focus on the pattern of 2018-2020, it still maintains the hawkish trend.
The statement of the Fed maintains optimism about the economy and removes the wording of the easing policy.
For the first time, they deleted the sentence of “The stance of monetary policy remains accommodative, occasion supporting strong labor market conditions and a sustained return to 2 percent inflation” from the original text. That’s also a sign of hawkish movement.
Economic Data Forecasts:
Most of the numbers remain unchanged compared with June 2018’s prediction, but notably, they adjusted the GDP forecast from 2.8% to 3.1%, which is more optimistic.
We all know that the “balance sheet normalization plan” initiated by the Fed in October last year 2017. The purpose of this plan is to reduce the huge amount of debt back to its “normal” size (i.e., not too far away for the country’s GDP level)
Let’s see how it goes up till today: after one year of the reduction process, the total assets (including liabilities) of the US has dropped from nearly $4.5 trillion to $4.2 trillion.
Powell Highlights During The Conference
By Lanson Chen – Analyst
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