TONIGHT, POWELL'S "FOMC LAST": PROBABLY HOLD STILL, BUT THE HAWK TASTES STRONGER

Original by Jo Wing

Original source:See you on Wall Street

THE FED’S APRIL FOMC MEETING WAS ALMOST UNSUSPECTING – INTEREST RATES REMAINED UNCHANGED – BUT THE REAL POINT OF THE MEETING WAS WHAT SIGNALS POWELL’S FINAL POLICY MEETING, IN HIS CAPACITY AS CHAIRMAN, WOULD SEND, AND WHETHER THE COMMISSION FORMALLY CONVEYED TO THE MARKET ITS “BASICALLY OUT” STANCE。

At 2 a.m. Beijing time on April 30th, the Fed will publish its interest rate resolution, with the base rate expected to remain constant at 3.5 to 3.75 per cent, with a high level of market consensus, with only Councillor Milan expected to disagree and support 25 base points。

The latest changes were due to inflation, the prospect of Iran ' s war and energy shocks continued to perturb, gasoline prices remained above $4 and traffic in the Strait of Hormuz remained highly hampered. At the same time, recent employment data show resilience, weakening the sense of urgency on the part of Dove Commissioners to demand that the labour market be brought to the bottom as soon as possible。

Federal Reserve officials generally predicted that the fall in inflation would be postponed for another full year. Market expectations for interest-rate reductions have narrowed significantly, and Deutsche Bank has withdrawn its previous forecast of interest-rate reductions in September and adjusted the baseline scenario to be “indefinite” for the Fed near a neutral interest rate。

The core game of the meeting focused on the risk characterization of the wording of the statement and the press conference — the addition or deletion of one of the words in the forward guidance, or the transmission of a distinct policy signal to the market. At the same time, with the end of the investigation into Powell by the United States Department of Justice, the appointment of Kevin Walsh as Chairman of the Federal Reserve has largely opened the way, making this meeting even more historic。

It's a stand-in consensus, and it's going to be the next step

THIS TIME FOMC DOES NOT HAVE A DOT MAP, AND THE INTEREST RATE ITSELF IS HARDLY SUSPENSEFUL. THE POINT IS WHETHER THE FED IS STILL WILLING TO RETAIN THE POLICY IMPLICATION THAT THE NEXT STEP IS MORE LIKELY TO LOWER INTEREST RATES, OR TO BEGIN TO ACKNOWLEDGE THAT RISK HAS SHIFTED IN BOTH DIRECTIONS。

According to Bank of America, the current inflation outlook is as unclear as it was at the March meeting. Although stock market trading is as if the war in Iran had ended, energy and shipping disturbances are still in place, and there remains a high degree of uncertainty about the transmission of core inflation from the conflict。

THE EMPLOYER DID NOT PROVIDE SUFFICIENT REASON FOR THE FED TO RUSH. IN MARCH, FIGURES SUCH AS NON-FARMERS, ADPS AND INITIAL UNEMPLOYMENT BENEFITS SHOWED THAT THE LABOUR MARKET WAS RESILIENT AND EVEN SHOWED SIGNS OF IMPROVEMENT. THIS MEANS THAT IT IS EVEN MORE DIFFICULT FOR MEMBERS WHO HAVE IN THE PAST ADVOCATED A REDUCTION IN INTEREST RATES TO CONTINUE TO EMPHASIZE THE “DOWNSIDE RISK OF EMPLOYMENT” AS THE MAIN POLICY BASIS。

The doves are starting to tighten, and the urgency of the drop is dropping

Prior to this meeting, the most dramatic change within the Fed was the one in which the members of the previous stand-off took a tight stand。

Waller’s speech last week not only highlighted the upward risk of inflation from the war in Iran, but also referred to the labour supply shock. In his view, this means that the economy may be able to maintain a stable unemployment rate by `nearly needing or needing no new net employment'. According to the Bank, Waller may still want to lower interest rates this year, but the rate may be lower than previously anticipated and the time is lower。

Daly's statement goes further. She said that if the policy remained unchanged throughout the year, it would put a good strain on inflation without limiting it to harming the labour market. She also argued that the impact of the war in Iran on inflation could be greater than that on growth, and that the current benchmark situation in Daly had become a flat year-round interest rate path。

Even Miran, the most dove in FOMC, has expressed his preference for a three-fold reduction in interest rates this year, rather than four, because the inflation portfolio has worsened since the beginning of the year. According to the Bank, if the April meeting were to have some kind of array, some members’ 2026 interest rates were expected to have been moved, and by June the risk of more points moving up was increasing。

Language of the declaration: the difference between the word and the signal is very different

THE BIGGEST POINT OF THIS FOMC STATEMENT IS WHETHER THE FED WILL SUGGEST THAT THE POLICY PATH RISK HAS SHIFTED TO A "TWO-WAY" APPROACH。

the expression “additional adjustments” in the current statement implies that the next step is envisaged for low-rate pigeons. to change it to "any reforms" or simply delete "additionsal" would mean that the next course of action is no longer predetermined as a reduction in interest rates and that the policy path is officially open to both sides. the minutes of the march meeting show that the number of members supporting the adoption of a two-way risk expression has increased from "several" to "some" in january, and that the language has been strengthened。

In the view of the Bank of America, this is a near-fifty judgement, but the majority still prefers to maintain the existing forward-looking language. Deutsche Bank, for its part, tends to believe that the substantive guidance adjustment will be postponed until June, when the Commission will have more clarity about the situation in the Middle East, labour market stability and the route of inflation, but the risks are clearly biased towards the Eagles。

In addition, the statement foresees an adjustment: given the four-quarter GDP repairs and weak consumption spending from 1 to 2 February, the Fed may have moved down the description of economic activity from "solid" to "moderate". The Bank of the United States noted, however, that the adjustment itself was of a dove-like nature and that there was some contradiction with the Commission ' s current overall intention to send the Eagle signal to the market。

Press conference: Powell's hard-line stance is inevitable

If it were indeed Powell's last press conference as President, he would probably maintain a moderate hawk stance。

According to the United States Bank, the central message of Powell may be that the Fed will remain firm and that current policies are well prepared to deal with the risks of a dual mission. While uncertainty remains high, there is no reason for the Fed to contest the market ' s flat pricing of interest rate paths。

The most sensitive issue for the launch was the interest rate increase threshold. If Powell reiterates that the interest rate hike is not a benchmark for the majority of the Commission, the market may interpret it as a dove signal. He would be seen as a hawk signal if he emphasized the importance of fulfilling his anti-inflation mandate, or if he pointed out that inflation had been higher than the target for years。

It is worth noting that "inflation" was mentioned 67 times at the March launch, and "labour market/employment/unemployment" was mentioned only 40 times, and inflation has apparently become one of the most important policy scales. He is not expected to give a quantitative increase threshold。

With regard to the war in Iran, Powell expects to recognize both the risk of upward inflation and the risk of growth and downward labour market. But the market is more interested in which side he leans. If his statement is close to Daly, that is, that the impact of the war on inflation is greater than that on growth, the market may consider it very hawk。

Was the interest rate suspended or delayed

Nick Timiraos, known as the New Federal Reserve News Agency, wrote before the meeting that the April meeting marked the beginning of a deeper policy debate: How long can the Fed maintain its position that “the next step is more likely to be lower than higher”。

Timiraos pointed out that Powell's concerns about stagnating were reduced two years ago, stating that he “does not see the stagnating or the swelling”. But today, the energy shock caused by the war is compounded by inflation that has not returned to its target of 2 per cent, making the stagnating historical mirrors of the 1970s no longer as remote as in the past。

He stressed that the Federal Reserve was observing how the United States economy could absorb the fourth supply shock in five years, including the resurgence of the epidemic, the Russian-Ukrainian conflict, the customs wave and the Iranian war. Each shock alone may be interpreted as an occasional event that does not require a policy response, but successively, the management of inflation expectations becomes more difficult。

Timiraos believes that the declaration itself may be as important as the interest rate decision. If the Fed changes the wording of the official statement to imply that the interest rate reduction has been largely out of the picture, its market impact may be no less than a policy action。

Last dance and position

THIS MEETING WAS GIVEN MORE ATTENTION BECAUSE IT COULD BE THE LAST FOMC IN THE PRESIDENCY OF PRESIDENT POWELL。

THE TERM OF THE FEDERAL RESERVE CHAIRMAN OF POWELL WILL EXPIRE ON MAY 15, AFTER HE UNDERTOOK TO SERVE AS THE "TEMPORARY CHAIRMAN" UNTIL HIS SUCCESSOR WAS CONFIRMED. AS DOJ STOPPED INVESTIGATING POWELL-RELATED MATTERS, KEVIN WALSH'S SENATE CONFIRMED A CLEARER PATH。

THE BANK ANTICIPATED THAT KEVIN WALSH WOULD BE SWORN IN BEFORE THE FOMC MEETING ON 16-17 JUNE. IF THIS RHYTHM IS FULFILLED, THE APRIL MEETING WILL BE THE LAST FULL POLICY COMMUNICATION WINDOW OF THE POWELL ERA, AND THE MARKET WILL BE MORE CONCERNED ABOUT WHETHER IT WILL LEAVE THE NEXT PRESIDENT WITH A "FUTURE AND NO DROP" POLICY STARTING POINT。

Market response: tail risk under non-incident clothing

THE GOLDMAN SACHS PERSPECTIVE SHOWS THAT THE MARKET AS A WHOLE VIEWS THIS FOMC AS A LOW-VOLATILITY EVENT, BUT THAT DIRECTIONAL SENSITIVITY STILL EXISTS FOR DIFFERENT ASSETS。

In terms of interest rates, Brian Bingham, a Goldmanian analyst, expected the statement that there would be no significant change in hawk inflation language, and Powell would repeat to wait for observation. However, only about 5 basis points are currently priced in December, with a higher threshold for further large-scale sales and counting the probability of a substantial increase. If the baseline situation deviates, the risk is more likely to point to higher interest rates, lower interest rates and more flat curves。

On the foreign exchange side, Goldman Sachs trader Carlie Ladda argued that the Fed’s slight bias towards eagles could bring in a dollar purchase, but was unlikely to lead to a sustained pattern. The market remains more concerned about the situation in Iran, corporate financial accounts and end-of-month factors. Trading counters tend to sell United States dollars when they rebound。

On the equity side, Goldman Sachs, Vicki Chang, noted that the main risk to the stock market of FOMC was that Powell could counter risk preferences if he were to focus more carefully on the inflation risks associated with commodity price shocks. Current risk assets have largely reduced the impact of conflict and downside risk may be underestimated。