US FOMC Results Imminent... Market Awaits Only the 'Dot Plot'

Market "Inflation Concerns Amid Economic Recovery"... Fed "Inflation Below Target"
WSJ "Likely to Reaffirm No Rate Hike at This FOMC"
Focus on 'Dot Plot' as Gauge for US Rate Hike Timing

Jerome Powell, Chair of the U.S. Federal Reserve System
[Photo by Reuters Yonhap News]

[Asia Economy Reporter Kim Suhwan] As the Federal Open Market Committee (FOMC) meeting, which will predict the future economic outlook of the United States and gauge the timing of interest rate hikes by the U.S. Federal Reserve (Fed), is currently underway, market attention is focused on the results of the meeting.

On the 16th (local time), the Wall Street Journal (WSJ) reported that at the ongoing FOMC meeting, committee members are expected to predict that the U.S. economic outlook will enter a recovery phase but will not change existing policies such as maintaining zero interest rates.

Earlier, Fed Chair Jerome Powell emphasized a speed strategy for economic stimulus over the past few weeks, stating that the "(U.S.) economic recovery is slow." In particular, as the number of COVID-19 vaccine recipients in the U.S. surpassed 100 million and vaccination expanded, and with the passage of a $1.9 trillion stimulus package in Congress, the possibility of advancing the timing of employment recovery and inflation rise that the Fed expects has increased. On the 24th of last month, Powell stated at a House hearing, "We hope that upcoming economic indicators will show results that bring us one step closer to the goals we have set."

In fact, according to a recent survey conducted by WSJ among economists, most respondents predicted that this year's economic growth rate would exceed the growth rate forecast by the FOMC in December. Specifically, respondents expected this year's GDP growth rate to be 5.9%, surpassing the FOMC's forecast of 4.2%, and predicted that the unemployment rate would fall below 5% for the first time since the COVID-19 pandemic.

Diane Swonk, chief economist at U.S. accounting firm Grant Thornton, said, "The recently passed stimulus package is expected to accelerate economic recovery," adding, "At this FOMC meeting, committee members will inevitably raise their economic outlook compared to the December forecast."

Additionally, market and expert attention is focused on the so-called dot plot, which charts the timing of interest rate hikes predicted individually by FOMC members. The dot plot represents each member's forecast of when and by how much interest rates will rise, with the median value becoming the official FOMC forecast for the timing of rate hikes. According to the dot plot released at the December FOMC, 12 out of 17 members expected zero interest rates to be maintained until 2023.

However, there are observations that some members may bring forward the predicted timing of rate hikes to 2022 at this FOMC meeting. WSJ reported, "As the COVID-19 pandemic subsides, pent-up consumer demand could explosively recover, potentially driving up inflation," and "some investors foresee the Fed possibly raising rates as early as next year."

The recent sharp rise in U.S. Treasury yields is also analyzed as reflecting market concerns about rate hikes due to inflation. Alan Blinder, a Princeton University economist who served as a Fed Board member from 1994 to 1996, said, "It is difficult to know exactly how much inflation the Fed will tolerate," and "this uncertainty has caused market anxiety."

Nevertheless, the Fed has firmly stated that interest rate hikes will not occur until inflation reaches its self-set target of 2%. This is interpreted as the Fed planning to maintain the current policy stance without shifting to tightening policies such as tapering (asset purchase reduction) for the time being. WSJ said, "What Chair Powell wants to avoid most is shocking the market," and "he is expected to make remarks at this FOMC considering the market's reaction."

Tim Duy, chief economist at financial analysis firm SGH Macro Advisors, said, "Currently, FOMC members are well aware of the market attention focused on them," and "to reassure the market, they are likely to send stronger signals to maintain the current policy stance."

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