U.S. financial conditions are close to the most accommodative level on record, even though U.S. Federal Reserve Has begun to accelerate the withdrawal of stimulus measures in the era of the coronavirus crisis in response to rising inflation.

Goldman Sachs economists said that since the Fed meeting last week, financial conditions indicators have only slightly tightened. Goldman Sachs economists have compiled a closely watched index that takes into account the U.S. stock market Changes, corporate borrowing costs, dollar trends, and the cost of financing the US government.

Despite the hawkish stance, the U.S. stock market has kept rising near record highs, and the yields of U.S. Treasury bonds are still stubbornly low compared to their historical standards.

The fact that companies have little difficulty in going public or obtaining new credit from lenders highlights the abnormal level of cash in the global financial system and poses problems for Fed policymakers seeking to cool the economy and curb inflation .

Laura Rosner-Warburton, senior economist at MacroPolicy Perspectives, said: “The goal is to slow down and hope that inflation will indeed go down.” “To do this, you need to tighten your finances. .”

The Federal Reserve is highly sensitive to financial conditions because it provides indicators to measure how changes in central bank policies and global economic prospects have penetrated into the real world. Its chairman Jay Powell also admitted this last week.He emphasized that the economy no longer needs such a huge emergency aid, but despite the central bank’s new plan Reduce faster The financial position of its asset purchase plan will remain “accommodative.”

Now, the stimulus plan will be completely stopped at the end of March — a milestone for the Federal Reserve, which tried to boost financial markets and support the economy during the crisis, more than doubling the size of its balance sheet.

Ending the so-called “cutting” early will allow the central bank to raise interest rates faster-officials now think they can raise interest rates three times next year to combat inflation, which is running at the fastest rate in nearly 40 years. year. This is more radical than three months ago, when the Federal Open Market Committee and other regional Fed chairmen were divided on the prospect of raising interest rates only once in 2022.

It is now expected that there will be three more 25 basis points hikes in 2023, and two more interest rate hikes are expected in 2024. Loans or interest on credit card bills.

Brian Nick, chief investment strategist at Nuveen, said that one of the key reasons for the accommodative financial environment is that investors are betting that the Fed may not be able to raise interest rates as expected if economic growth slows more than expected. Staff of the New York branch of the Central Bank.

After the Biden administration’s landmark $175 million social expenditure bill was passed, this prospect became the focus this week. blockade Democratic Senator Joe Manchin from West Virginia. The surge in Covid-19 cases related to the emerging Omicron variant has also cast a shadow over the outlook.

“As the spending bill is publicly resolved, and the growth prospects for the first quarter are weakened by Omicron, the Fed may not tighten as much as it thought,” Nick said. “If the Fed is willing, they will have many reasons to be patient.”

Market measures for interest rate expectations have Express deep suspicion On the way forward as expected by the Fed. The secured overnight financing interest rate futures used by traders to hedge interest rate changes means that the Fed will raise interest rates less than three times next year, and then eventually stagnate at around 1.4% in 2024. This is well below the US cent level recommended in the “dot plot” of the 2.1% Fed’s personal interest rate forecast released this month.

Higher inflation reading Some investors have warned that financial markets may still be disrupted in the coming months, and despite the Fed’s tightening policy, the stock market is still close to record levels. This is especially worrying for some people, considering the fact that the yield on US Treasuries is so low and the relatively shallow interest rate hike cycle priced in the short-term financing market. If the interest rate of any one of them rises suddenly, it may cause waves in the credit and stock markets.

Steve Kane, TCW’s co-chief investment officer for fixed income, said: “If inflation remains high, the Fed will have to speed up.” “This is where financial conditions will tighten quickly, and you may It will really disrupt the Apple car.”

A Fed governor Christopher Waller (Christopher Waller) has Handle the case The central bank raised interest rates in March, a few months earlier than the current futures market suggests. If price pressure continues to show clear signs of expanding beyond the industries most sensitive to pandemic-related disruptions, other senior officials may soon support this move.

“If you start to see the Fed accelerate the scale of its purchases, and the potential interest rate hike meeting in March [and] Erik Knutzen, chief investment officer for multiple asset classes at Neuberger Berman, said that financial conditions are beginning to tighten, and you will see this translate into large volatility in the market.