FED's Hawkish Monetary Policy under Dovish Disguise
Although the Fed remained the monetary policy unchanged as expected and reiterated in its post-meeting statement that it would pin the rate
for the long term, which seems to be dovish, it takes hawkish actions
instead. First of all, the Fed sharply raised its economic forecasts
with the median of projections for GDP growth up to -3.7% for the end
2020 (-6% for June projection), the median PCE (personal consumption
expenditure) inflation rate ending 2020 at +1% and the median core PCE
inflation ending 2020 at +1.5%, which are both higher than PCEs of June
projection.To get more news about
WikiFX, you can visit wikifx official website.
The bitmap shows that the interest rate will remain at current levels
until 2023, that is, the rate is likely to increase in 2024. The DXY
staged a rally despite the Fed's reiteration of long-term low-interest
rate both because of the sharp increases in economy and inflation
projected by the Fed and the chance for the interest rate to rise in
2024. However, most analyses lose sight of the implication that the Fed
will scale back quantitative easing (QE) prior to the rate increase.
Taking the last rate-hiking cycle for reference, the U.S. embraced the
cycle at the end of 2015, before when the Fed successively ended QE,
lifted interest rates, and shrank the balance sheet.
In 2013, as the U.S. gained strength in the broader economy, the rumors
that the Fed was going to cut back QE seized the financial market in Q1.
The DXY thus was gearing up for a soar. At the end of 2013, the former
Fed Chair Bernanke eventually announced to begin Fed's tapering of QE,
resulting in the dollar price jumping from $80 to $100. After the
statement, the financial market predicted that a rate-raising cycle was
just around the corner, which at last triggered at the end of 2015.
Considering that the period from the tapering of QE to the occurrence of
the cycle is just two years, the Fed may start the tapering early in
2022 if it sets to inspire the rate in 2024.
Notably, the financial market will hype the tapering in advance before
it happens, which lasted for nine to ten months in 2013 according to
the process mentioned above. In other words, next year is expected to
see rumors of the U.S. tapering of QE in Q1 & Q2. With that said,
investors should never be under the misapprehension that the greenback
won't rise until the rate gets higher in 2024. The rate just increased
at the end of 2015 even though the dollar had been poised for aggressive
growth since early 2013.
