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China’s Navy have ramped up combat drills in the East China Sea near Taiwan

  
  Analysis

China’s People’s Liberation Army (PLA) says it has intensified “realistic combat” exercises in the East China Sea.

  • more than 10 drills, including close-in gun defence, main gun attack on the sea, tracking and surveillance, damage control, and search and rescue operations

Info comes via the South China Morning Post (may be gated). The Post says the exercises were launched in response to a visit to the island by a bipartisan group of American lawmakers.

Taiwan Straits

FOMC statement from the May 2022 meeting: Fed hikes by 50bps

  
  Analysis

Although overall economic activity edged down in the first quarter, household spending and business fixed investment remained strong. Job gains have been robust in recent months, and the unemployment rate has declined substantially.  Inflation  remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.

The invasion of Ukraine by Russia is causing tremendous human and economic hardship. The implications for the U.S. economy are highly uncertain. The invasion and related events are creating additional upward pressure on inflation and are likely to weigh on economic activity. In addition, COVID-related lockdowns in China are likely to exacerbate supply chain disruptions. The Committee is highly attentive to inflation risks.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With appropriate firming in the stance of monetary policy, the Committee expects inflation to return to its 2 percent objective and the labor market to remain strong. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 3/4 to 1 percent and anticipates that ongoing increases in the target range will be appropriate. In addition, the Committee decided to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities on June 1, as described in the Plans for Reducing the Size of the Federal Reserve’s Balance Sheet that were issued in conjunction with this statement.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; James Bullard; Esther L. George; Patrick Harker; Loretta J. Mester; and Christopher J. Waller. Patrick Harker voted as an alternate member at this meeting.

Implementation Note issued May 4, 2022

FOMC preview: ” A move other than a half percentage point hike would be a surprise”

  
  Analysis

The Federal Open Market Committee statement is due on Wednesday 4 May at 1800 GMT

  • Powell’s press conference follows at 1830 GMT
  • A half point hike in the fed funds target range to 0.75%–1.0% is expected alongside implementation of plans to shrink the balance sheet.
  • A move other than a half percentage point hike would be a surprise to markets.
  • One thing to watch for would be any signs of a shift in the explanation of the drivers of inflation toward something that is now believed to be longer-lived.
  • Nothing in the March dot plot indicates that the Fed plans on pausing rate hikes any time soon.
  • The direction of risks to inflationary pressures remains pointed higher and is likely to result in Chair Powell maintaining a hawkish stance.
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