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Fed, moderate inflation and rise in interest rates
It is considered a “positive sign” for the economic recovery,
When the rise continues, the stock market and ankle stimulus measures
Experts on the “once in profit management” perspective
Powell Hearing May Signal
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On the 22nd (local time), the President of the European Central Bank (ECB) Christine Lagarde intervened verbally and said: “We are closely monitoring the interest rates on long-term nominal government bonds.” Interest rates on 10-year Treasuries in Germany, France and Italy, which had been rising since Lagarde’s remarks, fell. The interest rate on German government bonds fell 0.03 percentage points on the same day, but compared to the beginning of this month, it is still 0.2 percentage points higher.
Governor Lagarde’s intervention reveals the challenges facing the Federal Reserve System (Fed). Fed Chairman Jerome Powell will meet for Congressional hearings from 23-24. Most likely, he will be asked about inflation and rising government bond rates. Markets hope that the verbal intervention of the ECB will allow the Fed to hint at additional easing measures that could further lower long-term interest rates. “The Fed is blinking yellow light as interest rates move sharply,” said Mohamed L. Allianz, senior adviser. “I think the Fed will do more to manage its returns.”
Meanwhile, Wall Street predicted that the Fed could increase long-term bond purchases. As the interest rate on 30-year Treasuries continues to rise alongside 10-year bonds, the Fed can keep the amount of bond purchases at $ 120 billion per month (approx.
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In fact, 10-year Treasuries are based on the rate of return on mortgage and corporate bonds (benchmarks), so if this rate increases rapidly, the market can become unstable. Long-term interest rates could make it difficult for the Fed given that the United States has at least 20 million recipients of unemployment benefits and the Fed’s monetary policy is focused on employment indicators. Some point out that letting the current uptrend spin out of control. Carl Weinberg, chief economist at High Frequency Economics, said, “Higher long-term interest rates will put the central bank in trouble,” he said, and “could neutralize some of the stimulus.”
However, the Fed sees some inflation and rising government bond yields as positive signs that the economy is booming. According to CNBC, the US economic broadcaster, the forecast US economic growth rate for the first quarter of this year, which was 3% on the 19th of last month, compared to the previous year. , has doubled to 6% from 21.. Leading experts, including Johns Hopkins University, predict that herd immunity in the US could be achieved by the end of April, earlier than expected. In general, the economic situation is improving, but there is no reason to force intervention.
There is an atmosphere within the Federal Reserve that there is no need for further action yet. Fed Chairman Thomas Barkin Richmond drew a line that day, saying, “We don’t see the recent rise in bond rates as a problem, and long-term interest rates remain low.” New York Yon Gov. John Williams, who is in charge of market manipulation at the Fed, also said the recent surge in long-term bond yields reflects economic optimism and is not a cause for concern. The Federal Open Market Committee (FOMC), held last month, also maintained its position, contrary to market expectations.
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With this in mind, the analysis flows that Powell can not only reaffirm his current position in the parliamentary audience, but for the moment. The Fed internally reviewed the increase in the portion of long-term bond purchases or the Yield Curve Control (YCC), but did not apply it.
However, this could lead to a more pronounced increase in government debt yields. PGIM chief economist Nathan Sitz said: “If Chairman Powell is too optimistic about rising interest rates, the market will take it as a green signal that interest rates will continue to rise.”
There are also concerns that the Fed may take advantage of the current easing policy earlier than expected, as the interest rate hike is due to high inflation expectations. However, many experts believe that there will not be a rate hike at the moment. As Treasury Secretary Janet Yellen nailed the stimulus success to the unemployment rate ahead of the new coronavirus infection (Corona 19), it is unlikely that the Fed or the Fed will pull out an austerity card on their own without an notable improvement in the labor market. . Rising debt from the federal government, the state government, and households and businesses is also a factor that hinders rate hikes. A Wall Street official diagnosed: “In the current situation, tightening of policy may indicate that the economy is reviving and raise market interest rates even more.”
/ New York = Correspondent Kim Young-pil [email protected]
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