Original title: Goldman Sachs GroupThe lattice diagram implies a kind of "defection" within the Federal Reserve!? Three revelations from the September FOMC resolution.

Source: FX168

On Wednesday, local time, the fed announced its September interest rate resolution: the FOMC agreed to keep the target range of the policy rate, the federal funds rate, unchanged at 0%, 0.25%, in line with market expectations.

In response to the market-focused curtailment of bond purchases, the Fed added a sentence in its monetary policy statement: "if general progress continues as expected, the FOMC committee has determined that the pace of adjusting asset purchases may soon be guaranteed."

With regard to the timing of reducing bond purchases, Federal Reserve Chairman Colin Powell said the reduction "may be announced at the next meeting at the earliest." However, he also said he was willing to wait longer if necessary, and stressed that the minus code does not mean that the countdown to raising interest rates begins.

In response, financial blog zerohedge commented that the Federal Open Market Committee (FOMC) on Wednesday paved the way for the start of quantitative easing in two months' time. "the committee judged that the pace of asset purchases may slow soon."

In addition, the policy rate path predicted in the Economic Forecast Summary (SEP) shows that the proportion of members of the Federal Open Market Committee (FOMC) is average between zero and one rate hikes in 2022, slightly higher than the implied interest rate of OIS.

In addition, the median forecast shows three additional interest rate increases in 2023 and 2024 (a total of six and a half by the end of 2024). As the chart above shows, the market expects the federal funds rate to be only 1% in 2024, and there is still a long way to go to catch up with the fed.

Zerohedge pointed out that strangely, in his comments to the Federal Open Market Committee, Goldman Sachs Group seemed to hint at a rebellion within the Fed:

"our best guess is that Chairman Powell is not expected to raise interest rates in 2022," said Goldman Sachs Group's Jan Hatzius. Will Powell cede control to the tougher local Fed?

In the post-mortem analysis of the Federal Open Market Committee, Bank of America CorporationMichelle Meyer, chief economist, said that overall, the Fed meeting was another move in a "tougher direction".

Even if the Fed clarifies, "this is still a very moderate Fed, highly committed to higher inflation and an overheated economy." But in the face of supply-side constraints and growing signs of persistent inflation, these targets seem to be achieved sooner. "

As Hatzius points out, "the median means three more rate increases in 2023 and three more in 2024, which means a total of 3.5 rate increases by the end of 2023 (2 in June) and six and a half increases by the end of 2024 (none in June)."

There are three important lessons from this meeting:

1. As mentioned above, the reduction plan will be announced in November and completed by the middle of the year. Although the downsizing signal in the statement was ambiguous-"it may slow down soon"-Chairman Powell clarified at a news conference that they could be ready for the upcoming (November) meeting. So if there is no obvious disappointment in the employment data or financial markets, it confirms what the zerohedge said two weeks ago that tightening will begin in November and end in July.

2. Committee members tend to raise interest rates: as the Fed's updated bitmap shows, the Fed's ratio between the first rate hike in 2022 and the first rate hike in 2023 is average, with a median rate hike of 0.25% in 2023. The current consensus is that interest rates will be raised three times in 2023 and 2024 and will remain at 1.75% at the end of the forecast period. As chairman Powell pointed out, this is still well below the long-term fund rate of 2.5 per cent, which means policy is still loose, and with OIS still pegged to 1 per cent in 2024, the market judges that the fed is unlikely to achieve this goal.

3. Rising inflation is emerging due to greater supply-side constraints: core inflation forecasts give a modest boost, and Powell points out that the supply side is limited, posing a challenge to inflation. As Bank of America Corporation points out, "the Fed is increasingly worried about persistent price pressures, although the key test will be long-term inflation expectations, which are still well under control." Monitoring supply-side developments is essential: the supply side of goods and labour remains tight.

On curtailing quantitative easing in November

Although the statement was somewhat ambiguous, Chairman Powell made it very clear at the press conference. He noted that the criteria for further substantial progress in price stability had been met and that employment had been "almost met", although some cynics pointed out that this was not the case.

Powell said he needed to see a "good" but not particularly good employment report in September before he could safely announce a reduction in bond purchases at the November meeting. Powell also spoke specifically about the path to scaling back bond purchases, pointing out that the committee is expected to end the reduction in bond purchases by the middle of this year, indicating that the Fed tends to scale back its bond purchases on a monthly basis, that is, by $15 billion a month.