● As widely expected, the US Federal Open Market Committee (FOMC) lifted its policy rate by 25 basis points (bps) to a target range of 5.25-5.50%, its highest level in 22 years. Voting members were unanimous.
● Our take: The Federal Reserve firmly indicated that it will not cut rates this year. Although both the FOMC and Chairman Jerome Powell agree that they are getting to a situation that is sufficiently restrictive, their job is not done until the 2.0% inflation target is achieved.
● Fed speak: The Fed's statement left the door open for further rate hikes but did not seem to indicate more increases lay ahead. It dropped the phrase about “pausing to assess the state of the economy,” replacing it with "the Committee will continue to assess additional information and its implications for monetary policy." Future guidance was identical to June, leaving the door open to one further rate increase later in the year.
● Maintains QT. Meanwhile, the Fed indicated that it would continue to shrink its balance sheet at its previously announced pace, which also acts to tighten policy to slow economic growth, and inflation.
● More restrictive for longer. Powell said during his post-monetary policy meeting press conference that the current economic conditions show that monetary policy will likely need to be more restrictive for longer, stating that “policy has not been restrictive enough for long enough to have its full desired effects,” adding that ““we intend to keep policy restrictive until we are confident inflation is coming down sustainably to our 2.0% target, and we are prepared to further tighten if that is appropriate.”
● Data to determine September hike. Powell said "it's possible" that the Fed will raise rates again at the September meeting if the data warrants it, "or we could decide to maintain" the rate, as he agrees that the policy rate is already restrictive.
● Sacrificing growth. Powell acknowledged that a pullback in economic growth and labour market strength is likely to come following its commitment to its 2.0% inflation target. However, he adds that “restoring price stability is essential to set the stage for achieving maximum employment and stable prices over the longer run.”
● Bank Negara Malaysia (BNM) Policy Outlook. BNM is expected to keep the overnight policy rate unchanged at 3.00% for the next 6 to 12 months, in view of both headline and core inflation have continued to trend lower.
Source: Kenanga Research - 27 Jul 2023
Created by kiasutrader | Aug 23, 2024
Created by kiasutrader | Aug 23, 2024