The previous day, the U.S. Consumer Price Index

The previous day, the U.S. Consumer Price Index was released. Before the announcement, aren't we seeing 3.0% in CPI and 0.0% month-on-month again following last month? … Isn't the impact of rent declines now in earnest… So when we see price stability that exceeds market expectations… How happy should we be? … The asset market was reacting hotly to the expectations. If you look at the actual announcement, it was in line with the market's expectations. Except that the drop in energy prices in the details reflected the stability of gasoline prices… It was hard to find anything remarkable. Expectations that they would fall short of expectations… And if we put a damper on expectations that it would be lower than last month, markets, which were reacting to the disappointment that the Fed's rate cut would be delayed, soon corrects their thinking. But we're going to make a decision! Inflation is going to come down… We're going to make a decision. We're going to make a cut next March, we're going to make one in May, we're going to make one in September… We're going to make a cut in the end… We're going to make it like a funnel. Eventually, we're going to make a big cut… That expectation is still working hard on the market.

It's the Fed that has to deal with these expectations. We have to answer these market concerns at the FOMC early tomorrow morning. Let me just briefly tell you what to watch. We're expecting interest rates to be frozen. But the Fed has to communicate simply nicely about how to check the expectations for cuts beyond that, not that freezing is important. It's hawkish in September, dovish in November, it's hawkish in December ... If the Fed changes monetary policy every time, like spinning an aircraft carrier, that could lead to a lot of confusion in the market. Oh ... slip of the tongue. The market starts to ignore the Fed. Eventually, those people are going to cut interest rates because they have a strong idea that they're just going to cut them. ... It seems like the Fed itself has used up a lot of its cards. We'll have to see how to break through this. ... We'll have to see, for example, if inflation doesn't get caught easily, there's a possibility of a further increase. A comment like this is not going to have much of an impact on the market anymore.

And the important thing to do with that kind of communication is the projection that's going to be released this time around. And the projection is going to be the growth projection, the unemployment projection, the inflation projection, and finally the dot plot. And even if there wasn't much to say at the FOMC last September, what the market was afraid of is that these projections really demonstrated its commitment to Higher for Longer. And they raised the projection for this year from 1.0 percent to 2.1 percent. And they also raised the projection for growth in the 24th and 25th years. And they raised it to the point where they call a recession, and they raised the projection a little bit. And they raised the projection a little bit. And they said that the dot plot, along with one more increase by the end of the year, is going to come down to around 5 to 5.25% next year. So this is the September version.

First of all, the growth outlook is important. As financial conditions tighten significantly, the possibility of slowing growth is likely to exceed the possibility of a recession. You can see how much you see that possibility through the Fed's growth outlook next year and the year after. If it is similar to the last time, or if it is adjusted upward, it will show that the Fed is not concerned about growth because there is no change from September, when growth conditions were solid. This will dampen the market's expectation of aggressive interest rate cuts next year. The same goes for prices. Likewise, data for next year and the year after will be more important than prices at the end of this year. In order to meet the market's expectations that price stability is accelerating… I think it should be lowered somewhat from the previous forecast… It will be an important point to watch.

In addition to the data projections, there are a few more things to look at. One is financial, and the Fed is calling for higher interest rates because financial conditions are tight, and in November, the FOMC said, markets have made strong gains, and that's what they've been doing in July and September. Financial conditions have been restored in just 45 days. What should I say this time? Powell has to answer this puzzling question. Maybe this will come up at a press conference.

The second is that the amount of reverse repo is rapidly decreasing. Not long ago, Reuters reported that the end of quantitative tightening is coming soon as the amount of reverse repo is decreasing. In November, on the other hand, the FOMC minutes mentioned that Fed members could continue quantitative tightening even with the end of interest rate hikes & rate cuts. During the 2019 insurance rate cut, quantitative tightening ended before the rate cut. While there is cheers for the fact that the market is turning to a rate cut, there is also an expectation that the quantitative tightening that afflicts the market will end before the rate cut, according to the pattern of 2019. Let's pay attention to what the Fed has to say about reverse repo, bank reserves, and quantitative tightening plans. Likewise, I think it will be one of the questions during the press conference.

Finally, the Fed is now preparing to reform the banking system. With Chairman Michael Barr as the head of the group, we want to strengthen capital controls on banks. It's positive that banks can build more capital to lower the possibility of bankruptcy, but this will reduce bank loans and lower bank profitability. The real economy will be hurt by the lack of loans from banks. There seems to be a significant backlash from the U.S. banking sector. Under these circumstances, the reversal of short- and long-term interest rates continues, leading to the continued shaking of loan-to-deposit margins for small and medium-sized banks in the U.S. Perhaps the performance of small and medium-sized banks in the fourth quarter of this year, which will be announced early next year, could be significantly damaged. And some banks are using standing repo programs little by little. Let's look at some of the side effects of bank regulations. It's an important point related to bank reserves.

I'll say this much and cut it down. Thank you.