Next Week's US FOMC Watch Points?..."Focus on Fed's Economic Assessment and More"

[Asia Economy Reporter Minji Lee] With the Federal Open Market Committee (FOMC) scheduled for two days on the 15th and 16th local time next week, attention is being drawn to three key areas: the Federal Reserve's (Fed) economic assessment, detailed changes related to asset purchases, and the strengthening of forward guidance.

According to the financial investment industry on the 12th, while the overall framework of policies such as maintaining the base interest rate and continuing asset purchases is expected to remain, inflation forecasts are likely to be slightly revised upward. This is because the third-quarter economic growth rate (-2.9%) has surpassed the September forecast (-3.7%), and the unemployment rate is approaching the Fed's projections.

More important than adjusting forecasts is the Fed's judgment on the economy. Currently, positive factors such as COVID-19 vaccine distribution and normalization of economic activities coexist with concerns like the resurgence of COVID-19 and difficulties in negotiating additional stimulus measures, making it difficult to clearly predict the Fed's judgment. Hyeyoon Lim, a researcher at KTB Investment & Securities, said, "Through the Fed's economic assessment, we can gauge detailed changes in the pace of asset purchases that will occur in the future."

The current guidance on asset purchases is approximately $80 billion in monthly Treasury securities and $40 billion in mortgage-backed securities (MBS). At this FOMC, it is expected that there will be mentions regarding changes in the pace or proportion of purchases. According to the November FOMC minutes, Fed officials are considering additional easing measures such as expanding purchase volumes, increasing the proportion of long-term bonds, and extending the purchase period. Researcher Lim explained, "In a situation where the market is expecting additional easing, if there is progress in this discussion, risk asset preference will increase."

Additionally, it is worth noting whether specific figures such as unemployment and inflation will be presented as conditions for maintaining or changing policies. According to the November FOMC minutes, the majority of officials prefer a qualitative outcome-based approach for asset purchase guidance and are expected to present a short-term cadence. Most officials forecast that interest rates will remain unchanged until 2023, with unemployment and inflation reaching approximately 4% and 2%, respectively. Researcher Lim said, "Considering the distribution of forecasts, the unemployment and inflation rates likely to be presented as asset purchase guidance are around 5% and 1.8%, respectively," adding, "This will increase confidence in the continuation of easing."

However, considering recent remarks by the President of the San Francisco Fed, who stated that although discussions have taken place, there is little intention to implement policies immediately, there is also a possibility that no measures will be taken. Researcher Yumi Ahn of Kiwoom Securities explained, "If there is no fiscal stimulus policy and no additional measures, market interest rates, which had been suppressed while expecting further Fed actions, may instead rise, increasing market anxiety."

Meanwhile, the flow of real economic indicators in the United States is expected to slow or decline compared to the previous month due to the negative impact of the COVID-19 spread. In the case of U.S. consumption, the employment recovery is slowing, and the effect of government transfer income is weakening, making a decline inevitable if additional stimulus measures do not follow. Although inventories are decreasing, the production sector is recovering slowly due to the impact of COVID-19, which is expected to limit the overall improvement in production activities.

This content was produced with the assistance of AI translation services.