Several national central banks, including those of the United States, the United Kingdom, Japan, and other countries, have taken turns convening meetings at which decisions are made. The Bank of Japan decided to maintain its monetary policy of easy money, in contrast to the United Kingdom and the United States, which decided to increase their policy interest rates. Allen Sinai, president of the United States research firm Decision Economics, was interviewed by a reporter from the Nikkei (Chinese version: Nikkei Chinese website) about the future outlook for the stock markets and the foreign exchange markets. This interview took place at a time when fears of a worsening economy are intensifying. Reporter: How should we make sense of the statement made by the Federal Open Market Committee (FOMC) as well as the statement made by Fed Chairman Jerome Powell? According to Allen Sinai, what Powell said this time was his firm resolve to “continuously raise interest rates in order to keep inflation within the target range of 2%.” By looking at the benchmark interest rate expectations given by FOMC participants, it appears as though they are hawks (positive on monetary tightening) because they are expecting a rate hike that is higher than what the market is expecting. These factors are the driving force behind the rise in yields on 2-year U.S. government bonds and the buying of the dollar against major currencies.
Reporter: Please discuss the potential for an increase in the long-term interest rate in the United States as well as the end point of the current interest rate hike. Allen Sinai: I believe that by the end of 2022, the Federal Reserve will have increased its benchmark rate to 4.375%. In 2023, interest rates should either be kept on an upward trend or brought up to a range of 5%. It is anticipated that it will remain at these levels for some time without immediately moving to a lower rate of interest. This is due to the fact that inflation in the United States is stubbornly high and will not be able to drop to the targeted range of 2 percent next year. The yield on the 10-year Treasury bond in the United States, which has evolved into an indicator of the rate of interest over the long term, will climb to between 4.25 and 4.5%. Reporter: The strengthening of the dollar and the ongoing increase in interest rates have both become headwinds for businesses based in the United States. Allen Sinai: If there is a slowdown in the economy of the rest of the world, it will have an effect on the exports of companies in the United States. Increasing interest rates are another factor that works against us. Even though a reduction in the rate of increase in profits is unavoidable, it is unclear how severe this reduction will be. If there is a rise in uncertainty, there will be no increase in stock prices. Reporter: Do you think the stock market in the United States will continue to fall? Allen Sinai: Before the end of the year, the stock market in the United States typically goes up. By the end of the year, I anticipate that the S&P 500 will have increased by approximately 5% from its current level to approximately 4,000. It is estimated to be somewhere between 3600 and 4100 points, based on the fluctuation range that occurred throughout the course of the year. Will be significantly impacted by the rate of inflation, and there is a distinct possibility of tumultuous shifts. For the time being, I do not intend to invest in stocks listed in the United States. The fact that U.S. stock prices have entered a bear market after falling approximately 20% from their highs in January is a positive development for investors. I believe that U.S. and global equity markets will continue to show weakness, despite the fact that they are very close to reaching bottom levels. At some point in 2023, inflation will return to its previous level, and the actions of central banks around the world to raise benchmark interest rates will come to an end. If it can be predicted after six months to one year, then investors may have more reason to be optimistic about the stock market. Nihon Keizai Shimbun is the newspaper’s reporter (Chinese version: Nikkei Chinese website) Miyamoto Takashi