While there was no change in the current policy level at the Fed meeting, where we do not expect an operational situation in general; The directions made for the general course of the economy also revealed the progress of a preparatory phase in tapering. The pace of asset purchases appears to be the subject of intense debate, which appears to indicate that the Fed may fire a clearer signal in subsequent meetings. Of course, while the transition towards tightening the policy is gradually progressing, there are also reservations that cannot be ignored. The arguments, each of which is justified on its own, bring with it the necessity of keeping the balance of the delicate scales intact during the transition period.
If we look at the content of the policy statement; The first prominent detail is that the recovery of the economy is progressing: “The economy has made progress towards targets and the Committee will continue to evaluate progress at upcoming meetings.” The part related to public health and the epidemic found its place in the statement with more general expressions: “The path of the economy continues to depend on the course of the virus. Progress on vaccines will continue to reduce the effects of the public health crisis on the economy, but risks to the economic outlook remain.” It is interesting that the Delta variant or increased Covid-19 infections are not the subject of a separate reference in this section. Because this dynamic is the main concern of the labor market, economic activity and inflation. As for the speed of asset purchases; “The committee aims to achieve maximum employment and inflation of 2 percent in the long run. With inflation consistently below this long-term target, the Committee will target inflation moderately above 2 percent for a period of time so that inflation averages 2 percent over time and long-term inflation expectations remain stable at 2 percent. The Committee expects monetary policy to adopt a harmonious stance until these results are achieved.” Of course, the Fed will maintain the current range in interest rates until labor market conditions reach levels consistent with the Committee's assessments of maximum employment and inflation, and will repurchase Treasury securities by at least $80 billion per month and mortgage-backed securities by at least $40 billion per month until substantial progress towards
Powell's speech reiterates the temporary conditions of inflation, but also reveals the reservations about employment in particular. The labor market still has a long way to go, and millions of Americans remain idle in the labor market after the pandemic. It is also accepted by Powell that inflation will be higher than desired in the short term, while the projections for low inflation rates in the longer term remain valid. On inflation; Although pandemic items contribute to the bloat effect, the main effect comes from the supply of goods, supply shortages and shipping delays increase these costs.
As for loans; While flows to households and businesses are a result of QE, our dynamic that differs from the previous QE is hyperinflation. In the previous period, inflation was tried to reach 2%, now there is an inflation that will be allowed to hover above 2%. But for the Fed, the allowable rate for inflation has been exceeded by a large amount, not a small amount. While this makes it difficult to achieve the 2% target on average, it may require adaptation to new financial conditions that will help restrain the rate of inflation. It will also be necessary to take into account the warming effect in the mortgage market and the possible risks of corporate financing-induced loan returns.
Interest rates are not rising anytime soon, 2023 is the most likely date. Before that, there will be a gradual reduction in bond purchases. Cutting the first tranche at the beginning of 2022, which assumes it will continue until the first rate hike for about a year, highlights the September or December meetings. These meetings will be the scene of communication, and there may be a more concrete tapering plan. In addition, these meetings will include economic projection and dot plot. So deeper scenario analysis. Interest rates, on the other hand, will probably not increase sequentially after the first step has been taken.
In conclusion; We see a FOMC where the reference to economic progress in the policy statement gives a more hawkish tandem, while Powell's reservations and his approach of not being close to a rate hike balance the situation. The pandemic continues, which puts the situation in uncertainty, especially with regard to inflation and equal recovery. However, the prevailing dynamics indicate that inflation pressures will be felt for longer than previously predicted. Supply-driven effects make it difficult for the Fed to stay on the easing plane.
Kaynak Tera Yatırım
Hibya Haber Ajansı