The Fed puts its side in the inflation debate and sends a message to the market – no rate has been rising for years


Jerome Powell, president of the US Federal Reserve, speaks during a news conference after the Federal Open Market Committee (FOMC) meeting in Washington, January 29, 2020.

Andrew Harrer | Bloomberg Getty Images

The Fed does not expect inflation to last for years, and is willing to keep it even after rates are zero.

The stock initially raised the stock after the Fed released its post-meeting statement and its latest economic forecasts, indicating it would keep interest rates at least through 2023 as expected. The stock gave up its gains as Fed Chairman Jerome Powell briefed the media, describing the Fed’s guidance as strong and “powerful”.

Michael Aaron, the lead investor, said, “He’s a great and powerful ooze. Investors were cheated. They thought that the forward guidance meant something, but when they peek behind the curtain, they realize that the Fed does nothing, And the market rolled. ” Strategist of State Street Global Advisors.

Treasury yields rose slightly after Powell said the Fed plans to keep its asset purchases at current levels. Some bond market professionals have expected the Fed to step up treasury purchases, and Powell was not committed to it. The 10-year Treasury yield rose to 0.695%.

“We will continue to monitor developments and we are ready to adjust our plans appropriately,” said Pavel.

But it was the guidance of the Fed that dovish was found in the markets. In the latest Fed estimates, the main inflation is expected to remain low and not reach the Fed’s 2% target by 2023. At the same time, the job market is expected to improve to the point where unemployment is below 4% in 2023. Now go at the rate of 4.1%.

“It’s very high, high equity, low rates for a weak dollar,” said BMO Senior Fixed Income Strategist John Hill. “The Fed is saying that we are not hiking in 2023, maybe in 2024 … what they are saying is our goals. We hope they are just barely met and yet, they are not rates. Are increasing. ”

The Fed announced a change in its policy last month, where it would now let inflation run above its target for some time before raising rates. But in the central trend of Fed forecasts, the Fed sees core inflation running below 2% through 2022. It expects core PCE inflation to be 1.3% to 1.5% this year, and 1.6% to 1.8% next year. By 2023 this speed reaches 1.9% to 2%.

But AB economist Eric Vinograd said he could reduce the message being sent to Powell.

“They said that targeting an inflationary overshoot for ‘some time’, as stated in the statement, means that they are not targeting a ‘continuous’ overshoot. So if it is not continuous then ‘some time.’ ‘ how tall is?” “This insincerity is a problem the committee has to resolve to reclaim the full benefits of the framework change. It’s not a coincidence that the stock market, which was in positive territory, flipped negatively after the chair’s comments.”

Powell said the Fed hopes inflation will improve.

“This is very strong guidance, and we think it will be sustainable guidance that will provide significant support for the economy,” he said.

While some Wall Street strategists and investors believe inflation could become a problem, the Fed has said it is more concerned about the divestment.

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