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The Federal Reserve Board of Governors stabilizes interest rates and sees a gradual decline in bond purchases “soon”

The Federal Reserve Board of Governors kept benchmark rates near zero on Wednesday, but showed that rate hikes could come sooner than expected, significantly lowering this year’s economic outlook.

In addition to these highly anticipated moves, Federal Open Market Committee officials have indicated that they will begin to withdraw some of the stimuli that central banks have provided during the financial crisis. But there were no signs of when that would happen.

“If progress continues broadly as expected, the Commission will determine that the easing of the pace of asset purchases may soon be justified,” a statement after the FOMC meeting said. Respondents to a recent CNBC survey said they expect a tapering of bond purchases to be announced in November and begin in December.

In light of these expectations, the Commission unanimously decided to fix short-term interest rates to near zero. But now more and more members are seeing top-notch rate hikes in 2022. In June, when members last released their economic forecasts, a small majority put the increase in 2023.

More information may come Federal Reserve Board Chairman Jerome Powell speaks at a press conference after the meeting 2:30 pm Eastern Standard Time.

Initially, the market was largely unresponsive to Fed news, major equity averages continued to rise strongly, and government bond yields were mixed.

The Fed’s economic forecasts have undergone major changes, including lower growth prospects and higher inflation expectations.

The Commission currently estimates that this year’s GDP will rise by only 5.9%, compared to June’s 7% forecast. However, the growth rate in 2023 was set at 3.8% from the previous 3.3%, and by 2023 it was 2.5%, an increase of one tenth.

Forecasts also showed that FOMC members are seeing stronger inflation than was shown in June. Core inflation is projected to increase 3.7% this year, compared to the 3% forecast when members showed their previous forecasts. Authorities have since estimated inflation in 2022 to be 2.3% in 2022, compared to the previous forecast of 2.1%. This is a tenth point higher than the June forecast.

Inflation, including food and energy, is expected to rise from 3.4% in June to 4.2% this year. For the next two years, it is expected to return to 2.2%, almost unchanged from the June outlook.

As another move, the Fed has announced that it will double the repurchase level of daily market operations from $ 80 billion to $ 160 billion.

The market was barely expecting a major decision from the conference, but partly ahead of the time when the Fed began to slow down its monthly bond purchases.

Powell will be able to meet central banks’ inflation targeting and begin saving at least $ 120 billion a month in government bond and mortgage purchases at the federal government’s annual symposium in Jackson Hall, Wyoming, in August. I have shown that I am in a position. Backed securities.

Investors were also looking to the meeting to see where Fed officials were standing in the inflation outlook.

The Federal Reserve Board’s recommended inflation index (consumer spending minus food and energy prices) accelerated 3.6% in July to its highest level in 30 years. However, Powell reiterated that he hopes that price pressures will ease as supply chain factors, product shortages and unusually high levels of demand return to pre-pandemic levels.

—Correction: Even though there are an even number of members who think the 2022 rate hike is not, the Fed’s summary of economic forecasts shows a central trend as it rises next year.Earlier versions incorrectly characterized the individual expectations of committee members..

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The Federal Reserve Board of Governors stabilizes interest rates and sees a gradual decline in bond purchases “soon”

Source link The Federal Reserve Board of Governors stabilizes interest rates and sees a gradual decline in bond purchases “soon”

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