May 2024 FOMC Debrief

Hello my friends, today is May 1st and this is my May FOMC debrief. Now before we get into what happened today, let's level set a little bit. So the Fed targets 2% inflation and their favorite inflation measure is Core PCE. Now in the second half of 2023, Core PCE was bing on at 2% for 6 months. The Fed was feeling pretty good then, so in December, it signaled that it was open to cutting rates in 2024. Now in 2024, we got higher than expected inflation prints in January and February. When Chair Powell was asked about this in March, he basically shrugged and said, you know, this is probably seasonal.

大家好，今天是5月1日，这是我对5月份FOMC会议的总结。在我们讨论今天发生了什么之前，让我们先做一点平衡。美联储目标通胀率为2%，他们最喜欢的通胀衡量指标是核心PCE。在2023年下半年，核心PCE连续6个月维持在2%水平。当时美联储感觉很好，于是在12月份表示他们有可能在2024年降息。然而在2024年的1月和2月，通胀数据高于预期。当鲍威尔主席在3月被问及此事时，他基本上耸耸肩，表示你知道，这可能是季节性的。

Now though, we got inflation prints for March and they continued to be higher than expected. At this point in time, Chair Powell strongly signaled that he was not happy with progress on inflation and he was going to hold rates higher for longer. Now in response to this pivot, the market had priced out a lot of cuts. In January, the market was pricing in as many as 7 cuts this year. Heading into the Fed meeting today, the market was only pricing in about 1.5 cuts. So everyone was keen to see what Chair Powell would say about the data and also keen to find out more about their QUT tapering plans. In the minutes and at the last FOMC press conference, Chair Powell had basically hinted that the QUT taper was imminent.

然而，现在我们拿到了3月的通胀数据，它们继续高于预期。在这个时候，鲍威尔主席明确表示他对通胀进展不满意，并且将会长时间保持利率较高。对于这一转变，市场已经排除了许多降息。在1月份，市场预计今年将有多达7次降息。在今天的美联储会议之前，市场只预计会有约1.5次降息。因此，每个人都急于看到鲍威尔主席对数据的看法，也渴望了解更多他们的QUT缩减计划。在上一次FOMC会议纪要和上一次新闻发布会上，鲍威尔主席基本上暗示QUT的缩减将是迫在眉睫的。

Okay, so that brings us to today. So I thought today's FOMC conference was modestly dovish. Now it was modestly dovish for a couple reasons. First, when it comes to QUT, QUT was the QUT taper was more than expected. So right now, the Fed is letting about $60 billion in Treasuries run off in a maximum of $35 billion a month in mortgage MBS run off. So everyone knows that they're not going to do anything with mortgages, that's really nothing to think about. What everyone was expecting though was for the $60 billion a month in Treasuries run off to be cut in half to $30 billion a month. But instead, the Fed basically surprised everyone and cut run off to $25 billion a month.

好的，那么让我们来谈谈今天。我认为今天的FOMC会议让人感到稍微鸽派。这主要有几个原因。首先，就是关于QUT，QUT的缩减幅度超出了预期。现在，美联储每个月让大约600亿美元的国债到期，最多每个月让350亿美元的抵押债券到期。每个人都知道他们不会对抵押贷款做任何事情，所以不用考虑这个。然而，每个人都预期的是，国债到期的600亿美元将减半至每月300亿美元。但实际上，美联储出人意料地将到期金额减少到每月250亿美元。

Now the Fed obviously knows that the market is expecting $30 billion a month, but they gave them $25 million. So it was calibrated to be supportive of the bond market. And on that sense, it was dovish. And you can see that the bond market did react positively. Now the second reason why Terpaul was, I think, modestly dovish is that he was strongly strongly telling everyone that there wouldn't be any rate hikes anymore. And indeed, you really should never have expected any. But it seems from the press conference, there were many reporters asking Terpaul in many different ways whether or not he would hike rates again.

如今美联储显然知道市场预期每月买入300亿美元，但他们只提供了250亿美元。因此，这意味着政策旨在支持债券市场。从这个意义上说，这是鸽派的。你可以看到债券市场的积极反应。现在第二个原因是Terpaul比较鸽派的原因，我认为是因为他强烈表示不会再加息了。事实上，你真的从来不应该期望会有加息。但从发布会上看，有很多记者以各种方式问Terpaul是否会再次加息。

Now Terpaul, I mean, being a central banker, let's listen to what he said. So I think it's unlikely that the next policy rate move will be a hike. I'd say it's unlikely. Our policy focus is really what I just mentioned, which is how long to keep policy restrictive. Again, this is Terpaul as strongly as he can be telling everyone that, you know, the rate hikes are just not in the cars. Indeed, if you just step back and think about it, it should be obvious. So right now, inflation looks like it's about at 2.7%.

现在，让我们听听央行行长特保尔说的话。我认为下一次的政策利率调整可能不会是加息。我会说这种可能性很小。我们政策的重点真的是我刚才提到的，也就是要将政策保持 restrective 状态的时间有多长。特保尔强调指出，加息并不在计划中。实际上，如果你退后一步思考一下，这应该是显而易见的。目前，通货膨胀率看起来大约为2.7%。

Interest rates are about at 5.5%. You know, 2.7% is not that far from the Fed's target. It would seem strange to have actually 5.5% interest rates. Now if the Fed is not going to hike anymore, the next thing that everyone wants to know is when are they going to cut rates? So first off, we know that the Terpaul, as Terpaul has said, they are not happy with progress on inflation. So if they guided towards three cuts this year, now it's probably going to be less. Maybe two, maybe one. Now Terpaul told you his reaction function today. He says, let's actually let's listen to what he says.

利率大约是5.5%。你知道，2.7%离联邦储备的目标并不远。实际上让利率达到5.5%看起来很奇怪。现在如果联邦储备不再加息，那么每个人接下来想知道的是什么时候他们会降息？首先，我们知道Terpaul，正如Terpaul所说，他们对通胀进展不满意。所以如果他们指导今年将削减三次，现在可能会少一些。或许是两次，或许是一次。现在Terpaul告诉了你他的反应功能。他说，让我们听听他说了什么。

I think there's also other paths that the economy could take, which would cause us to want to consider rate cuts. And those would be, two of those paths would be that we do gain greater confidence. As we've said, if that inflation is moving sustainably now, 2% or 2%, and another path could be an unexpected weakening in the labor market, for example. So those are paths in which you could see us cutting rates. So I think it really will depend on the data. Okay, basically, if you want rate cuts, there's one of two ways you can get it. First, you can have inflation basically come down, more and more progress on inflation towards the 2% target.

我认为经济还有其他可能的发展方向，这可能会促使我们考虑降息。其中两种可能性是我们获得更大的信心。正如我们所说，如果通胀率现在持续上升到2%，另一种可能是劳动市场出现意外的疲弱，例如。因此，这些可能是我们可能会降息的情形。所以我认为这真的会取决于数据。基本上，如果你想要降息，有两种方法可以实现。首先，你可以通过通胀率基本下降，逐步实现通胀率朝向2%的目标。

The other way you can get rate cuts is if unemployment rises. As we all know, the Fed has two mandates, full employment and price stability. Right now, the unemployment rate is around multi-decade lows. But if there are surprises to the upside of that, if we have a sudden or surprising deterioration in the labor market, then that would also prompt monetary easing.

另一种降息的方式是当失业率上升。众所周知，美联储有两项使命，即实现充分就业和价格稳定。目前，失业率处于多年低点。但如果情况出现意外变化，比如劳动市场出现突然或意外恶化，那么也会促使货币宽松。

Now we don't get our latest employment data until Friday, but over the past few months, the employment data has been stronger than expected in large part because there's been tremendous, tremendous amounts of migration into the US, and that's adding to the labor supply and that's boosting job growth. But also note though, that if hiring weakens and labor supply continues to increase, which it looks like it's going to, then the unemployment rate could also rise faster than expected.

现在我们直到周五才能获得最新的就业数据，但在过去的几个月里，就业数据一直比预期强劲，这在很大程度上是因为有大量大规模的移民涌入美国，这增加了劳动力供应，推动了就业增长。但也要注意，如果招聘减弱，劳动力供应继续增加，看起来是这样的话，那么失业率可能会比预期增加得更快。

Okay, so that's all I prepared for today. I'll be back on Saturday for Markets Weekly. Thanks for tuning in.

好的，今天准备的就是这些。我会在星期六回来进行《周市分析》节目。谢谢您的收听。