"How Much Will Interest Rates Rise in September?" Despite Market Interest... Fed May Not Provide Forward Guidance

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] The U.S. Federal Reserve (Fed) is expected to raise the benchmark interest rate by 0.75 percentage points again at the Federal Open Market Committee (FOMC) meeting held through the 27th (local time). However, The Wall Street Journal (WSJ) reported on the 26th that there is a possibility the Fed may not provide 'forward guidance' for the next meeting.

WSJ stated that analysts are focusing on Fed Chair Jerome Powell's remarks to get hints about the direction of the rate hike in September, but they expect that specific details about the size of the rate increase will not be disclosed. Chair Powell has provided concrete forward guidance on FOMC decisions earlier this year, but to maintain policy flexibility, it is expected that he will not make specific comments on the additional rate hike size.

Before the June meeting, Chair Powell ruled out a giant step (0.75 percentage point rate hike), but due to worsening economic indicators, the Fed decided on a 0.75 percentage point increase, which caused credibility issues as the forward guidance did not align with the actual decision. Goldman Sachs analyzed in a report last week that the Fed is likely to keep options open rather than providing strong guidance.

Forward guidance has become a key communication tool for central banks since it was introduced in 2011 by former Fed Chair Ben Bernanke, who led quantitative easing (QE) policies after the global financial crisis, following the precedent set by the Bank of Canada.

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