The December Interest Rate Increase Is A Foregone Conclusion. How Does The Federal Reserve's Monetary Policy Plan Go?

At present, according to market participants' analysis of the Federal Reserve's economic and monetary policy expectations, the Fed expects to raise interest rates two times in 2017 and increase interest rates three times in 2018 and 2019 years.

Economists predict that Fed officials estimate that they will not adjust their expectations for the future growth rate of the US economy and the trend of interest rates in the next three years.

At present, the market expects the Federal Reserve to announce interest rate hikes after the upcoming open market conference.

But the Fed seems to have been avoiding a bigger question about the direction of the financial market: where will the direction of US economic development lie in the future after Trump's election to the US presidency?

The open market meeting of the Federal Reserve will last two days on Wednesday, December (Thursday, Beijing time).

The market expects the big probability of the Federal Reserve to announce that the federal funds rate will be raised to a range of 0.5% to 0.75%, that is, raising interest rates by 25 basis points.

This will also be the first time the Fed has raised interest rates this year, which is expected to have a major impact on the US stock market and bond market.

Last year, analysts generally expected the fed to raise interest rates two to four times this year.

According to foreign media reports, Reinhart, chief economist of New York Mellon company, predicts that Fed officials will keep a low profile as far as possible in public speeches, and will not explicitly support or challenge Trump's policy blueprint because they do not want to be seen as putting pressure on policymakers.

After the meeting, Fed officials expected to avoid discussing the financial, trade and regulatory policies of the incoming Trump administration, and how these new policies will affect the US economic development and the Federal Reserve.

Plan.

In the past few months, Fed officials' statements in public showed that the Fed wanted to avoid involvement in the political whirlpool of the US presidential election.

Therefore, in September and November, the Fed's open market meeting minutes did not mention the impact of the US general election on monetary policy.

Prior to that, Carney, the governor of the Bank of England, made public political speeches before and after the referendum in Britain, sparking a strong dissatisfaction with Britain's departure from the European Union.

Now, Federal Reserve Chairman Yellen will learn this lesson.

Moreover, analysts believe that the Fed does not want to annoy the current US Senate and house of Representatives Republicans, resulting in the government cutting the Fed's policy power.

However, analysts pointed out that too distant expectations are basically not worth reference, and the market will ignore any economic forecast after mid 2017.

By then, the Trump administration has officially taken charge of the White House and will influence the Fed's policy decisions by nominating two vacant Federal Reserve directors.

Therefore, the market now expects the fed to raise interest rates again by June next year.

However, most market participants also admit that the US Congress needs to raise interest rates to a higher position as soon as possible because the US Congress is likely to implement fiscal policy to reduce corporate tax burden next year, so as to ensure that fiscal stimulus does not aggravate inflation.

The US Treasury yield and US dollar index rose sharply after the US election results came out, precisely because the market expected the fed to speed up the pace of raising interest rates.

Simons, economist at the investment bank, said recently

The sharp rise reflects investors' optimistic expectations of the future development of the US economy, but the Fed's policy stance may be more cautious.

For the current Federal Reserve Chairman, Yellen, there is only 14 months left for her to leave office.

Republican insiders say Trump probably will not support Yellen as chairman of the Federal Reserve again.

However, analysts predict that Yellen will not resign early because of Trump's coming to power, and is expected to adhere to her policy plan before the end of his term.

Logan, chief economist of HSBC global research department, said

President Yellen is a hard nut to crack. She will not yield to any political pressure.

If the Federal Reserve decides to raise interest rates two times next year, it is estimated that the two rate hike will take place between June and December next year.

According to the latest batch of economic data, the direction of the Fed's long-term monetary policy is to steadily increase interest rates at a steady pace.

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