[Asia Economy Reporter Hwang Junho] The Federal Open Market Committee (FOMC), which sets the direction of U.S. monetary policy, will be held on the 21st and 22nd. Market attention is focused on signals regarding the implementation of tapering within this year. At last month's Jackson Hole meeting, Jerome Powell, Chairman of the Federal Reserve (Fed), hinted at tapering within the year, increasing market interest in this FOMC.
The FOMC results will be announced at 3 a.m. KST on the 23rd. Along with changes in the statement, it is necessary to pay close attention to the Fed's growth, unemployment, and inflation forecasts, as well as the dot plot of Fed officials.
In the securities industry, it is widely expected that this year's growth forecast will likely be maintained at the previous level. The Investment Strategy Team at Kiwoom Securities Research Center stated, "Although the market has recently been revising down the economic growth rate for Q3 this year, expectations for vaccine distribution expansion, resumption of pent-up consumption, and improvement in employment conditions remain valid."
However, they added, "Considering that recent inflation rates have been higher than expected, there is room for a slight upward revision of the inflation forecast compared to previous levels. In that case, the possibility of Fed tapering within the year will increase further." Nevertheless, it is expected that the tapering announcement will more likely occur at the November FOMC rather than the September meeting, and Fed officials are anticipated to continue making remarks similar to those at the previous FOMC.
On the other hand, regarding the dot plot, if 10 out of the 18 FOMC participants raise their 2022 projections, it would indicate a rate hike early next year. At the June FOMC, 11 out of 18 members expected the benchmark interest rate to remain unchanged. If 3 of them lean toward a rate hike, the possibility of an increase grows.
Researcher Lee Miseon of Hana Financial Investment analyzed, "If the 2022 dot plot shifts from indicating a rate hold to suggesting one rate hike, the market will reflect caution about tapering and an imminent rate increase."
Currently, the market expects detailed plans for asset purchase reduction to be disclosed at the November 4 FOMC and implemented from December this year or January next year. The consensus is that the $120 billion monthly asset purchase scale will be reduced over 8 to 10 months and completely end by the third or fourth quarter of next year.
If this FOMC announces a more gradual reduction of asset purchases over a longer period than the market expects, the market is likely to interpret this as a dovish move. Researcher Lee explained, "Unless tapering starts in November this year, it is unlikely that a specific tapering schedule will be presented at the September meeting."
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