The Fed And Slowing Down The Pace Of Rate Hikes On Last Meeting This Year?
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There are 3 weeks left till New Year, but the situation in the financial markets is not becoming less tense. Next week it seems to be the most importan of these 3. 2022 has been a dramatic year for rate hikes from the U.S. Federal Reserve (Fed), and there is still one meeting to go.
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Data
There’s lot of economic data came before the meeting, this will shape the December decision. The main things to watch are inflation and employment.
The Producer Price Index, which measures the prices companies pay for goods and services before they reach consumers, rose 7.4% in November from a year earlier, the Bureau of Labor Statistics said on Friday. This is less than the revised 8.1% increase recorded in October.US stocks fell immediately after the report was released.
The PPI report generally receives less attention than the corresponding Consumer Price Index, which measures the prices US consumers pay for goods and services. However, it is a rare month that the PPI report comes ahead of the CPI report due out on Tuesday. It is expected to decline again and reach 7.3%. The downward trend in inflation has been maintained since August, which may be a sign that the Fed's actions are bringing results.
Source: investing.com
The number of Americans filing new unemployment claims rose moderately last week, pointing to a still tense and strong labor market despite growing fears of a recession, economists have warned against reading too much as data is volatile at this time of year.
Tensions and labor market resilience mean the US central bank is on track to continue raising interest rates for some time. Claims tend to be volatile at the start of the holiday season as businesses temporarily close or slow down hiring, which can make it difficult to get a clear picture of the job market.
Forecast
The Fed is widely expected to slow down to raise its benchmark rate by half a percentage point, slower than four 0.75 point rate hikes since June. This will put the Fed reference rate in the range of 4.25%-4.5%. While some economists argued that November's strong jobs report brought back a 0.75 point hike.
Overall, economists are expecting a hawkish Wednesday.
The key question here is how high the Fed wants rates to go in 2023. If December sees a 0.75 percentage point increase, that’s a signal that interest rates may top out at 5.5% or higher. However, if the December decision is a 0.5 percentage point hike or lower, then peak rates for this cycle may come in closer to 5%.
Fed Chairman Jerome Powell
During the Federal Reserve’s last battle with high inflation in the 1970s and 1980s, Fed officials didn’t talk much at all publicly.
Forty years later, there is no sign of a lack of comment from the central bank when Fed Chairman Jerome Powell holds a press conference after the meeting. And investors and economists will get plenty of information, not just smoke, from the central bank.
At his press conference in November, Powell said that if the Fed tightened policy, "we could use our tools to support the economy."
Markets then picked up a dovish signal from Powell's comment from a week ago that the central bank did not want to tighten policy.
Source: investing.com
