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Fed picks its side in inflation debate and sends a message to market – no rate hike for years

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US Federal Reserve Chairman Jerome Powell speaks at a news conference following the Federal Open Market Committee (FOMC) meeting on January 29, 2020 in Washington.

Andrew Horror | Bloomberg | Getty Images

The federal government does not expect inflation to rise for years, and is prepared to keep rates zero after that.

The stock initially rose The statement was issued by Federal after the meeting Its latest economic forecast shows that interest rates will remain at zero until 2023. Stokes explained that the federation’s guidance is strong and powerful, as Federal Chairman Jerome Powell told the media.

“He’s better and stronger. Investors were deceived. They thought better forward guidance would mean something, but when they look behind the scenes, they realize that the federation is doing nothing, and the market is shrinking,” said Michael Aaron, a strategist for State Street Global Advisors.

Treasury revenues rose slightly after Powell said the federal government plans to keep asset purchases at current levels. Some bond Market gains are expected Federal and Powell are not committed to increasing treasury purchases. The 10 years treasury income 0.695%.

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

But it was the federation’s guidance that found the markets bad. According to the federation’s latest forecast, headline inflation is expected to be low and will not reach the federation’s 2% target by 2023. At the same time, the labor market is expected to improve to where unemployment stands at 4% by 2023. The longest run rate is 4.1%.

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“It’s Dowish – long rates, high equities, weak dollar,” said John Hill, BMO’s senior fixed income strategist. “The federation says we’re not going to hike in 2023, maybe in 2024 … they say this is our goal. We hope we’ve barely met them, and yet they are not raising rates.”

The federal government announced last month that it had changed its policy of allowing inflation to reach its target for a short period of time before moving to raise rates. In the central trend of federal forecasts, the federal government sees core inflation as low as 2 percent by 2022. Core PCE inflation is expected to be 1.3 per cent to 1.5 per cent this year and 1.6 per cent to 1.8 per cent next year. By 2023, the pace will reach 1.9% to 2%.

But AB economist Eric Vinograd said Powell may have downplayed the message he sent.

As the statement says, targeting an inflation overshoot means that they are not aiming for a ‘sustainable’ overshoot. So, he said, how much ‘some time’ if it doesn’t keep up. That inaccuracy is an issue that needs to be addressed by the committee in order to reap the full benefits of the framework change. It is no coincidence that the stock market, which was in a positive area, turned negative after the opinion of the chair.

Powell said the federal government expects inflation to eventually improve.

“It is a very strong forward-looking guideline, it will be a durable guideline that will give significant support to the economy,” he said.

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While being Some Wall Street strategists and investors believe inflation It could become an issue, the federal government said, adding that it is more concerned about inflation.

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