The two-day December Federal Reserve (Fed) interest rate meeting is coming to an end on Wednesday (14th). The market expects the Fed to raise interest rates by 2 yards this time. than previously expected.
In addition to announcing the interest rate resolution, this meeting will also release the latest interest rate dot plot and economic forecasts. After raising interest rates by 3 yards for four consecutive times, Fed officials have repeatedly hinted that they will reduce the rate hike.
The United States announced on Tuesday (13th) that the consumer price index (CPI) in November increased by 7.1% year-on-year, although it was lower than the previous month’s 7.7% and market expectations, but it was still at a high level. Economists said Fed officials may take relief from the latest inflation figures, but not show it.
“I don’t think the Fed can claim victory on inflation yet, and until then, they’re going to be very careful,” said Aneta Markowska, chief financial economist at Jefferies.
Some economists also believe that the improvement in inflation may make Fed Chairman Jerome Powell’s speech on Wednesday (14th) more hawkish.
David Page, head of headline economics research at AXA Investment Mangers, said it added to the rhetoric of slowing down the pace of tightening, which the Fed has said in the past they want to slow down, which gives them some support and a reason to do so, However, improving inflation data could also make Powell’s job more difficult.
“We’re seeing U.S. bond yields start to fall because of the talk that Fed policy is going to shift soon, but that’s not helping the Fed control volatility in short-term Treasuries,” Page said. “More volatility means the Fed has to work harder to convince the market that There is still a lot of work to be done to bring inflation down.”
terminal interest rate may be higher
In addition, a major focus of this meeting is that the Fed will release the latest information on the terminal interest rate. The market expects that Fed officials will raise the terminal interest rate forecast from 4.6% to 5% or even higher.
Markowska also thinks the Fed will change the language in its policy statement to reflect that the rate hike cycle is coming to an end. The current wording of the Fed’s statement is “in order to achieve the 2% inflation target, it is appropriate to continue to raise the target interest rate range.”
Markowska believes that the “continued” statement seems too open-minded, and the Fed may substitute a more limited statement, such as perhaps saying “further (some further) rate hikes are appropriate.”