22 September chairman FRS Jerome Powell held a press conference after the regular meeting of the commission. Here is the main thing, what did he talk about.
Results of the meeting
Interest rate. All members of the commission voted unanimously to keep the interest rate at near-zero level. Compared to the June meeting, more and more committee members consider, that it is worth starting to raise the rate already in 2022. Median forecast - 0,3% in 2022 and 1% in 2023. Last time the committee voted for a rate hike in 2023 to 0,6%.
Quantitative Easing Program. The Federal Reserve will continue to buy treasury and mortgage bonds at 80 and $ 40 billion a month. The regulator noted the economic recovery, but did not name the start date for the reduction of stimulus measures.
GDP and unemployment. Commission revised GDP forecast for 2021 from 7 to 5,9%, but increased expectations for next year with 3,3 to 3,8%. The expected unemployment rate in 2021 rose from 4,5 to 4,8%.
Inflation. Inflation rate, according to the Fed, by the end of the year will be 4,2% and will remain at 2.1-2.2% in the next three years. Due to supply disruptions and a difficult situation in the labor market, raw materials, goods and services have risen significantly compared to last year. Powell says, the situation will return to normal, but more recently, the regulator expected much lower inflation: in March - 2,4%, in June - 3,4%.
Over the past few days, in anticipation of the meeting, the main stock indexes sank by more than 2%, but after Powell's press conference started to rise. Day S&P 500 added 0,9%, Dow Jones и Nasdaq — 1%.
The Fed's soft monetary policy is one of the main drivers of stock market growth. Last March, when S&P 500 fell by 30%, Fed lowers interest rate to 0-0.25% and announces quantitative easing program. The stock market began to grow and by August 2021 had doubled and increased 100%.
The price and yield of bonds move in the opposite direction. Low interest rates and quantitative easing programs keep bond yields low. If the regulator changes policy, bond yields will start to rise, what can affect the stock market.
Borrowed companies may suffer more than others. It will become more difficult for them to service and refinance debts. But the financial sector can win. Banks will be able to lend at a higher interest rate, which will increase their profits.