2023-11-01 09:21:00
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Investing.com – The meeting is likely to conclude on Wednesday evening, with investors awaiting Jerome Powell’s comments on the state of the economy and the future of monetary policy.
There is almost no chance that policymakers will make a move in either direction on interest rates. The latest data has given officials more time to make their monetary policy decisions. Inflation, although slowing, remains very high, and the economy is growing at a strong pace despite interest rates rising to their highest levels since the beginning of the century.
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So what investors will be watching is not the rate decision itself, but the signals that will come from Chairman Jerome Powell and the rest of the Federal Open Market Committee about the direction they lean in the future on monetary policy.
Despite Powell’s efforts to walk a fine line between fighting inflation and trying to adjust to the impact of higher interest rates on the economy, markets have been extremely sensitive. Stocks have been reeling over the past two months, while yields have been hovering around 16-year highs.
With much of this concern centered around how high interest rates will go, and how long the Fed will keep them high, Powell’s post-meeting press conference, as well as the FOMC’s statement, could move markets.
However, the last thing Powell wants to do is make the mistake of appearing too hawkish, because the implications would be negative for the markets.
In his latest appearance, Federal Reserve Chairman Jerome Powell hinted that inflation will continue to rise significantly. He stressed that “it may be necessary to adopt further monetary policy tightening measures,” indicating that his current policy will continue for a longer period.
However, it remains important to note that the Fed’s ability to predict the future has been inaccurate in recent years, raising questions about the validity of these predictions. In 2021, with the pace of inflation accelerating, Powell dismissed the price increases as “situational” and did not require an immediate response. This situation continued for a year until officials were finally forced to admit that inflation was more sustained than expected, raising interest rates the steepest in 40 years.
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Important events besides the interest decision
Markets will have a dual focus on Wednesday. Earlier today, the Treasury Department will provide more information about its financing needs in the near future, in what could be a pivotal moment for investors with intense focus on how the government will manage its $33.7 trillion debt. In addition to the release in September, data.
It’s all happening two days before the Labor Department’s release, and comes on the heels of a report showing better-than-expected economic growth in the third quarter but likely a slowdown ahead.
“The Fed is likely to keep interest rates steady despite accelerating GDP and employment,” credit strategists at Bank of America (NYSE:) said in a note to clients.
They added: “The Fed has adopted a more dovish tone after interest rates on longer-term Treasuries rose. At the press conference, Chairman Powell is likely to reiterate that the Fed is ‘acting cautiously.’”
The bank added that it expected Powell’s statement after the meeting to largely mirror statements he made in New York earlier in October. In that speech, Powell said he considered inflation to remain too high, and warned that the Fed, though able to move cautiously, was attuned to the potential upside risks to inflation.
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Next options
David Doyle, head of economics at Macquarie Group, said Powell’s comments may move markets more than the FOMC statement, adding that markets will be watching the Fed chairman’s views on the movement in Treasury yields.
Meanwhile, markets expect that there is no chance of a rate hike at this meeting, and there is only a 29% chance of a rate increase in December, but the first rate cut could come in June, according to .
However, some market participants believe the Fed may have to raise interest rates again as inflation persists.
Matthew Ryan, head of market strategy at Ebori, said the Fed “will likely not signal that it is done tightening yet.”
He explained: “We still see that there will be no further increase in US interest rates in the current cycle, and as a compromise, we believe that the Federal Reserve will confirm that interest rate cuts are not on the table anytime soon, with easing starting no earlier than the second half.” From 2024.”
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