Jakarta, CNBC Indonesia – The moment that market players have been waiting for at the end of this year finally arrived, Thursday (16/12) in the morning when Indonesia, the United States (US) central bank, or known as the Federal Reserve (The Fed) announced its monetary policy.
In the announcement, the policies taken by the Fed Chair, Jerome Powell, and his colleagues were all in line with the predictions of global market players. No surprise, the Fed has indeed aggressively accelerated its monetary policy normalization, but it’s all been weighed.
Tapering or a reduction in the value of the asset purchase program (quantitative easing/QE) increased to US$ 30 billion monthly from the current US$ 15 billion. The Fed’s QE is currently valued at US$ 90 billion, so that starting in January, the Fed’s QE is valued at US$ 60 billion, and continues to be reduced every month, until it ends in March.
Acceleration tapering This is exactly what market participants predicted, so there are no surprises.
Then for interest rates, judging by the Dot Plot of members of the Federal Open Market Committee (FOMC), there will be three interest rate hikes next year. This is again in line with market expectations, as reflected by the CME Group’s FedWatch device.
In this tool, market participants see the probability that the Fed will raise interest rates in June next year, followed by September and December 2022.
The Fed at the end of each quarter will provide its interest rate projections, as seen from dot plot. Every point in dot plot These are the views of each FOMC member on interest rates.
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Foto: Fed Dot Plot, Federal Reserve- – |
In dot plot this time, as many as 12 of the 18 FOMC members see interest rates could be raised 3 times in the next year.
In addition, in 2023 there will be 2 more hikes, as well as in 2024. So in the next three years there will be 7 interest rate hikes.
The Fed’s current interest rate is 0% – 0.25%, if every time the interest rate increases by 25 basis points (0.25%), then at the end of 2024 the Fed’s interest rate will be 1.75% – 2%.
This more aggressive policy normalization was carried out to reduce high inflation in the United States. This year, the Fed predicts inflation to reach 5.3%, much higher than the previous projection of 4.2%, while core inflation is predicted to grow 4.4% from the previous 3.7%.
To note, the Fed uses inflation as seen from personal consumption expenditure (PCE) as a reference. In October PCE inflation rose 5% year-on-year (yoy), the highest since November 1990.
Meanwhile, PCE core inflation, which excludes energy and food items, grew 4.1% (yoy), at its highest level since January 1991.
With the normalization of aggressive monetary policy, next year’s inflation is expected to ease to 2.6% and core inflation to 2.7%. This means that inflation in the United States will still be higher than the interest rate.
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