The FOMC and the financial market divergence will continue.


■ FOMC decided to narrow the interest rate hike to 25 basis points (Bps) but will continue to raise interest rates.
■ The financial market may further increase the forecast of interest rate cuts within this year, but it still needs to be carefully observed.

       The focus of the market on the FOMC is on the press conference of Powell, chairman of the US Federal Reserve Board (FRB). After the FOMC meeting in December last year, most senior Fed officials denied that they would cut interest rates within 2023, and said that they would maintain a high level of policy interest rates after the end of the interest rate hike cycle. In contrast, financial markets see interest rate cuts starting as early as this fall, with disagreements between the Fed and financial markets surrounding financial tightening.
      The financial market speculated through the press conference: Compared with prior expectations, the future financial tightening sentiment may not be positive, mainly reflected in the rise of US stocks, the decrease of US interest rates, and the depreciation of the US dollar. The market is concerned with the frequent use of "inflation". This shows that the Fed believes that the current situation of rising pressure on prices in the United States is changing, thus implying that the future cycle of interest rate hikes will stop. In the "Summary of Economic Outlook (SEP)" published after the FOMC meeting last December, the median policy rate forecast (end-2023) was set at 5.125%. Near that level, financial markets are predicting a further increase in the probability of rate cuts during the year given his explanation for the press conference.
      On the other hand, although he did not actively try to dispel the interest rate cut in the market this time, he has clearly denied the interest rate cut within the year. In addition, the FOMC statement also mentioned "continuing to raise interest rates (ongoing increases)" which has attracted much attention, and he himself mentioned many times that he would consider additional hikes in interest rates, etc., and his stance on financial tightening itself has not changed. Against the background of the current divergence of views on financial tightening between the FRB and the financial market, it is expected that an unstable period of widening price fluctuations will continue due to the impact of US price indicators and FRB officials' speeches. Regarding the observation of interest rate cuts during the year, which is soaring in the financial market, we hope to continue to observe carefully.