Kenanga Research & Investment

Author: kiasutrader   |   Latest post: Mon, 26 Oct 2020, 10:23 AM


US FOMC Meeting (15-16 September) - Fed Sees Better Economy With No Change In Rates Through 2023

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● Keeping it steady till 2023. While the Federal Open Market Committee (FOMC) voted to keep rates unchanged between a range of 0.0% and 0.25%, it also intend to keep it until at least the end of 2023 and would not tighten policy until inflation had been higher than 2.0% “for some time”.

● Re-emphasizing dovish LT policy shift. The new guidance from the FOMC applies a shift towards a more dovish longterm stance that was endorsed by the Fed last month at the Jackson Hole symposium. Meanwhile, the dot plot of interest rate projections on average sees rates staying near zero through the end of 2023, with only four members see rates higher.

● Re-stating its policy adjustment. In emphasizing the policy adjustment, the Fed said, "The Committee seeks to achieve maximum employment and inflation at the rate of 2.0% over the longer run". "With inflation running persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2.0% for some time so that inflation averages 2.0% over time and longer-term inflation expectations remain well anchored at 2.0%." "The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved".

● Better economic outlook. The FOMC sees GDP growth contracting by -3.7% for 2020, better than its previous estimate of -6.5%. Its new jobless rate forecast is 7.6%, versus 9.3% made last June. The committee sees unemployment rate to drop to 4.0% by end-2023. The Fed doesn't see core PCE inflation hitting 2.0% until the end of 2023.

● BNM at ease with current level. On the domestic monetary front, we believe that Bank Negara Malaysia appears to be comfortable with the cumulative 125 basis points reduction in the overnight policy rate this year. Along with its relatively upbeat tone by BNM in the Monetary Policy Committee statement on the recovery outlook, we see a higher probability that the central bank would keep the OPR unchanged at 1.75% till end of the year.

● Still room for policy easing. Nevertheless, we believe BNM still has room to lean towards further monetary easing should the recovery pace weaken, given that the downside risk remains on domestic political and geopolitical uncertainty along with fears of a new wave of COVID-19 infections, which could undermine growth recovery. We also do not rule out alternative monetary tools to be deployed to complement the current conventional policy approach to support the economic growth recovery.

Source: Kenanga Research - 17 Sept 2020

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