— This is the script of CNBC's news report for China's CCTV on September 18, Monday.
On Wednesday, U.S time, the Federal Reserve will announce its latest monetary policy resolution. There are two expectations for the meeting. Firstly, it is expected that the Fed will officially announce the start of its balance sheet reduction as previously it had already fully disclosed the scale and time of the reduction. Therefore, this reduction will not come as a surprise. Instead, the focus will be on the inflation and the dot plot.
It is widely expected that the Fed will not take any action on interest rates in this upcoming meeting, Instead, the focus will be on its inflation so as to reflect the changes on the dot plot forecast. If the Fed leans towards inflation rebound in this meeting, we are likely to see the dollar rebound. And according to the dot plot, interest rates are likely to increase by this December or next year.
In this regard, CNBC interviewed former Dallas Fed President Richard Fisher. He believes that according to current situation, one cannot rule out the possibility of Fed raising the interest rates by 25 basis points, because currently, the US interest rate is still at a very low level, and the time for the rate hike has arrived. But at the same time, he also expressed that after its balance sheet reduction the Fed will have more leeway to prepare for future US economic stimulus.
[Richard Fisher, Former Dallas Fed President] "If I may put this into perspective, we have a dual mandate at the Federal Reserve. Inflation is running well under 2%. It is no surprise that PPI that came a little stronger, if you analyse it, that's not what they are doing here. What they want to do is sort of buy back some of the balance sheet, have something to give back, in the case the business cycle eventually turns, we are in our 9th year of our economic expansion. We haven't had much more than 10 years of history. We could extend it out but they want to be able to soften the slowdown of the economy, they have to have some rate increases to do that."
Also, the Bank of Japan will also announce its interest rates in this week. This year, the Japan's economy is experiencing some rebound but it is still weak in terms of inflation expectations. At the same time, due to the recent sharp depreciation of the dollar and the geopolitical turmoil caused by market panic, the dollar against the yen showed a persistent downwards trend.
Besides, yen appreciation works to the inflation's disadvantage. It also makes it harder for the BOJ to achieve its policies objectives. Therefore, the market believes that it is likely the BOJ will not take any action or announce any stimulus plan in the near future during their upcoming meeting. The market is also concerned whether the BOJ will address key issues of inflation during the upcoming discussion. Many banking experts think that it will take a longer time for BOJ to reach its inflation target of 2%, thereby postponing stimulus measures.
But at the same time, analysts also believe that as a policy, monetary easing is far from enough. In order to promote economic and inflation continue to pick up, it also has to come from the government's fiscal stimulus.
[Nobuyuki Hirano | President & Group CEO, Mitsubishi UFJ Financial Group] "So Monetary policy itself has limited impact over the economy. It can give the positive impact for the markets, Money market capital markets, but it does not substantial change the economic system. So in order to make that happen, if I were him then I'd sit down with a prime minister Abe and you know make the discussion how we jointly steer this very difficult environment. And actually Kuroda and Abe have done quite a good job"
We are also expecting a number of central banks around the world to announce their tightening policies. Earlier on September 6, the Canadian central bank had unexpectedly increased interest rates by 25 basis points. The European Central Bank and the Bank of England are also showing signs of hawkish tightening.
Therefore, the world's major central banks are following the Fed's footsteps, starting with the Bank of Canada raising interest rates. Following, it is likely that the European Central Bank and the Bank of England put a halt to its loosening monetary policy and officially start on its tightening cycle. This will help promote the Euro and the pound, causing it to rise. We will continue to keep watch.
CNBC's Qian Chen reporting from Singapore.