The Federal Reserve holds its final meeting of the year this week and the FED officials will begin their two-day meeting on Tuesday. The central bank's latest policy statement will be released with fresh economic projections at 19:00 GMT on Wednesday. The central bank should also unveil new forecasts for interest rates, inflation, and the economy. Fed Chair Jerome Powell will hold a press conference following the meeting.
FED had an incredibly busy year in 2022
The Federal Reserve's policy-making committee increased its benchmark interest rate by another 75bps on the 2nd of November 2022. The central bank raised the benchmark lending rate by 0.75% points four consecutive times in recent months. Fed is to keep hiking interest rates at its December meeting and may take a hard stance on fighting inflation through the next year as well.
However, Investors expect the Fed to slow down the rate hike from the December meeting. The market is pricing in a roughly 75% chance that the Fed will raise rates by 50 basis points. Soft inflation data also eased investors’ concerns about aggressive interest rate increases. The October inflation report came in lower than expected, indicating that inflationary pressures are easing. On the other hand, the latest FED meeting minutes showed that most Fed officials felt a slowing in interest rate increases would be appropriate.
Earlier this month, in a speech delivered at the Brookings Institution in Washington, D.C, Federal Reserve Chair Jerome Powell signaled that the central bank would slow its pace of rate hikes next month. “The time for moderating the pace of rate increases may come as soon as the December meeting.” – Powell said.
Meanwhile, recent U.S. data has shown that the Federal Reserve may need to continue an aggressive tightening path to stamp out inflation. Two latest reports released this month showed strong job growth and better-than-expected service sector activity.
As we witnessed over the past few weeks, investors have been revisiting their portfolio’s asset allocation to balance the portfolio ahead of the final FED policy meeting of the year, especially after the Oil collapse.
We expect the US central bank is widely expected to announce a 50-basis point lift at its Dec 14 meeting. While investors should closely monitor the FED chair Powell's speech for clues about the Federal Open Market Committee's thoughts about slowing future increases.
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