Fed Officials' Dot Plot Shows Sharp Changes Since March
Inflation and Growth Rate Rise Accelerate Interest Rate Hike Timeline
Powell Calms Market Saying "No Need to Trust Dot Plot"
Tapering Discussion Also Revealed... Ongoing Evaluation Expected
[Asia Economy New York=Correspondent Baek Jong-min] Federal Reserve (Fed) officials have effectively signaled an acceleration of interest rate hikes through the dot plot. Although Fed Chair Jerome Powell downplayed the significance of the dot plot, concerns over rising inflation are spreading within the Fed, making it certain that the timetable for rate hikes will be expedited.
The dot plot released by the Fed on the 16th (local time) contained results that exceeded expectations. A significant number of officials marked two rate hikes in 2023. The dot plot is a way for each official to express their outlook on future interest rates by placing dots. While it is not an official Fed forecast, it is the most important factor in predicting future rates as it reflects the views of Fed officials.
Among the 18 FOMC members, 13 anticipated rate hikes in 2023. Eleven members marked two rate hikes within 2023. Seven officials also expressed the possibility of rate hikes in 2022. Only five officials projected that the current zero interest rate would be maintained through the end of 2023.
In the dot plot released at the March meeting, four members indicated the possibility of rate hikes in 2022, and seven in 2023. Considering this, Fed officials have significantly advanced the timing of rate hikes.
The market had expected the Fed to decide on a rate freeze again this time, and the dot plot was anticipated to serve as a "weathervane" to gauge the future direction of interest rates, drawing attention.
The Fed’s projection of U.S. inflation at 3.4% and economic growth at 7% for this year also suggests that monetary policy normalization will proceed faster than previously expected. However, the Fed reiterated in its statement that inflation is temporary.
Mark Cabana, Head of Short-Term Interest Rate Strategy at Bank of America, described this as a "noteworthy change in Fed stance." He noted that the dot plot reflected the Fed’s view that rising inflation poses risks.
At the press conference, Chair Powell focused on calming market concerns. He pointed out, "Inflation is higher and more persistent than we expected," but also predicted, "Inflation will now ease."
However, Powell mentioned, "The dot plot is not a good predictor of future rate trends," attempting to soothe market anxiety about the timing of rate hikes. Following Powell’s remarks, major indices on the New York Stock Exchange slightly reduced their losses.
Powell also acknowledged that the economy is recovering rapidly. He said that progress toward the Fed’s employment and inflation goals is proceeding somewhat faster than expected. The statement also evaluated that "economic activity and employment indicators have strengthened with expanded vaccination." Although sectors most affected by the COVID-19 pandemic remain weak, improvements have been observed.
The Fed also raised the interest rate on excess reserves (IOER) from the current 0.10% to 0.15%. It decided to implement policies addressing liquidity in the short-term funding market, including applying a 0.5% rate on reverse repurchase agreements.
Although the Fed’s statement released that day did not include details on asset purchase tapering, which had been a focus of attention, Chair Powell acknowledged that discussions on tapering had taken place. He stated that tapering discussions will continue and that sufficient time and signals will be provided before tapering is implemented.
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