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The minutes of the June 6 FOMC meeting show that the New York stock market will rise on the 6th.

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In June, there was a sign on the streets of New York advertising a job. In the recent U.S. labor market, businesses and stores are experiencing a shortage of jobs as workers who left en masse due to the COVID-19 pandemic have not returned.

In the minutes of the June regular meeting of the Federal Open Market Committee (FOMC) of the Federal Reserve System (Fed), the US stock market is expected to reduce inflation, which confirms the Fed’s desire to “concentrate on price control, supporting a sharp increase in rates.” Strengthened the will to climb.

New York Stock Exchange (NYSE) on the 6th (US ET) ▶ Dow Jones Industrial Average rose 69.86 points (0.23%) from the battlefield to 31 37.68 ▶ Standard & Poor’s 500 Index recorded 13.69 points (0.36). %) rose to 3845.08 ▶ The Nasdaq rose 39.61 points (0.35%) to 11,361.85 respectively. ▶ The Chicago Board Options Exchange (CBOE) Volatility Index (VIX) fell 0.81 points (2.94%) from the previous reading to 26.73.

Following the regular FOMC meeting on the 15th (local time) last month, the Fed announced a 0.75 percentage point increase in its base interest rate (a giant step). The target federal funds rate (FFR) will be raised from 0.75% to 1.00%, then from 1.50% to 1.75%. For the first time in 28 years, the Fed has taken a giant step since November 1994 (as former Fed Chairman Alan Greenspan). When Fed Chairman Jerome Powell announced in June, he indicated that he would “continue to raise rates by 0.75 percentage points or 0.50 percentage points in July.”

A New York Stock Exchange (NYSE) trader at work in front of a television screen broadcasting Federal Reserve Chairman Jerome Powell's speech in May.  (Not related to the New York Stock Exchange on the 6th.)

A New York Stock Exchange (NYSE) trader at work in front of a television screen broadcasting Federal Reserve Chairman Jerome Powell’s speech in May. (Not related to the New York Stock Exchange on the 6th.)

According to the minutes of the June regular meeting of the Federal Open Market Committee (FOMC), released by the Fed on the 6th (local time), members agreed that the restrictive policy (taking into account the inflation forecast) was justified and that inflationary pressures were recognized that than the more restrictive the policy response, the more appropriate.

Members also agreed that, while recognizing that a tough austerity policy could temporarily slow economic growth, inflation should be brought down to 2% to achieve maximum employment.

In addition, the FOMC meeting in June found that all 17 members of the committee agreed with the plan to raise the interest rate by 0.75 percentage points, except for Kansas City Federal Reserve Governor Esther George.

In other words, as a result of the release of the minutes, FOMC members expressed their desire to “concentrate on suppressing inflation, even if a significant increase in the base rate has the side effect of slowing US economic growth.” This was seen as “a necessary response to the expansion of the labor market without shrinking it in the future.”

Meanwhile, the dollar continued to strengthen, while the price of government bonds fell. Long-term and short-term inversion of interest rates, which is usually interpreted as a harbinger of an economic downturn, continued on the 6th after the 5th. The yield on 10-year government bonds rose to 2.93% and the yield on 2-year government bonds rose to 2.97%, respectively.

Bae-geun Choi, professor of economics at Konkuk University

Source: Economist

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