At 3:00 Beijing time on Thursday (December 15), the Federal Reserve will announce the last interest rate decision in 2022, and the rate hike is expected to be lowered to 50 basis points. The Fed will also release new interest rate dot plots and economic forecasts. In half an hour, Chairman Powell will hold a news conference. The Federal Reserve is likely to raise the interest rate peak expectations for this round of interest rate hike cycle.
★Last issue review
The Fed’s November meeting raised interest rates by 75 basis points for the fourth consecutive time as scheduled, and the Fed raised the benchmark interest rate to a range of 3.75%-4.00%. A total of 375 basis points of interest rate hikes have been raised this year. The Fed also raised the discount rate to 4.00% from 3.25%.
The Fed believes that it needs to keep raising interest rates until they reach a sufficiently restrictive level. However, it is prepared to adjust monetary policy appropriately and will take into account cumulative deflationary and lagged effects (in formulating policy) and will monitor economic and financial developments.
Chairman Powell sent a hawkish signal at his news conference. The clear statement that caught investors’ attention was that it would be “very premature” to “consider a pause” in rate hikes. Powell does not seem convinced that there is a huge lag in how monetary policy affects the economy.
Powell noted that financial conditions have been tightening amid expectations of Fed rate hikes, accelerating the impact on the economy. He wants the Fed to be in a “middle ground,” taking into account both the economic outlook and current economic conditions. Powell also believes the Fed has enough tools to stimulate the economy if it turns out to raise rates too high.
★What to watch in this issue
interest rate
Markets generally expect the Fed to lower interest rate hikes this week to 50 basis points. The Federal Reserve has raised interest rates by 375 basis points since the beginning of the year, and has raised interest rates by 75 basis points in the last four consecutive times, which has greatly increased the expenditure costs of enterprises and households in order to cool demand.
The worst for inflation may be over, but annual core inflation remains well above the Fed’s 2 percent target, fueling expectations that the central bank may have to keep interest rates higher for longer. CME Group’s “Fed Watch” tool shows that the Fed will raise interest rates to a peak of around 5% in March next year, higher than the Fed’s forecast of 4.6% in September.
“There’s a lot of confidence that the Fed will go to 5 percent or more … what we’re seeing and hearing in the money markets gives us confidence that the Fed is going to keep going,” said Berenberg economist Kallum Pickering.
inflation
The overall U.S. CPI annual rate in November, announced earlier this week, recorded 7.10%, the lowest since December last year; the core CPI annual rate in November also fell further to 6%, with the expected and previous values at 6.10% and 6.30% respectively. U.S. CPI data fell short of expectations for the second month in a row, proving that inflation is really starting to cool, strengthening the case for the Fed to slow the pace of rate hikes.
Economists hope that global shipping and manufacturing chaos will disappear and that consumer spending will shift from goods to services. That combination would bring supply and demand back into balance, slowing price increases for everything from cars to sofas.
But the shift in spending towards services means headline inflation will remain elevated for some time. The dip in inflation data will take longer to translate into lower consumer prices than some economists expect.
“The economy has been more resilient than expected, supply chain issues have persisted for much longer than expected and are less predictable in the ups and downs,” said Laura Rosner-Warburton, senior economist at Macro Policy Perspectives.
CNBC quoted David Mann, chief economist for Asia-Pacific, Middle East and Africa at the Mastercard Economics Institute, as saying: “Inflation has peaked, but it will remain above pre-COVID levels by 2023.”
employment
Also forcing the Fed may have to keep interest rates higher for longer is a tight labor market. U.S. employment rose more than expected in November, and wage growth accelerated from the previous month. The seemingly stressful economic environment is also sustaining low unemployment, with Latino and Black unemployment near record lows.
While rising food and other costs stretched household budgets, wage growth was strong and bank accounts and spending remained healthy. Consumption, the backbone of U.S. economic growth, continues to grow even after adjusting for inflation.
“The labor market is showing signs of cooling, but definitely not cracking … doesn’t look like a recession, with more than 250,000 new jobs a month and chronic labor shortages in some industries,” said LinkedIn chief economist Guy Berger. .”
economic outlook
Inflation, while easing, has been slow and the Fed has to make sure inflation is returning to its 2% target. That raised concerns that the central bank could hit the brakes too much and lead to a recession. A growing number of analysts expect the U.S. economy to slip into a recession in 2023, though its potential severity and duration are uncertain.
Bank of America Chief Executive Brian Moynihan told investors earlier this month that the bank’s research showed the U.S. economy would be “negative” in the first half of 2023, but that the contraction would be “moderate.”
“I still think the economy will slip into a brief, mild recession in mid-2023 based on eroding labor market growth, but no recession is now becoming more likely,” said Steven Blitz, chief U.S. economist at TS Lombard in New York. high.”
The U.S. economy remained on a moderate growth trajectory in the fourth quarter, and the Fed needs to force a mild recession next year to avoid a prolonged period of high inflation. Lower demand would require overall financial conditions to tighten again, which could include more rate hikes in the first quarter.
★Institutional Prospects
TD Securities: Or imply higher terminal interest rates
We expect the FOMC to raise interest rates by 50 basis points at its December meeting, raising the target range for the federal funds rate to 4.25%-4.50%. In doing so, the Committee would ultimately shift its inflation-adjusted policy stance into restrictive territory. We also expect the FOMC to signal that terminal rates may be higher than expected in September.
Rabobank: Hawkish tendencies will be more ambiguous
Analysts at Rabobank expect: “Powell will continue to resist cutting interest rates in 2023 and reiterate that restoring price stability will require keeping policy at restrictive levels for some time. He will also issue a strong warning against easing monetary policy too soon At the same time, Powell’s hawkish bias is expected to be more ambiguous, and the dot plot is likely to show a considerable divergence in terminal interest rate forecasts. By 2023, when the Fed voter camp becomes more dovish, this One point may become more salient.”
Commerzbank: Slow rate hikes further early next year
Economists at Commerzbank report that easing inflationary pressures could prompt the Fed to slow down the pace of rate hikes, “the consensus is that a 50 basis point rate hike at the FOMC meeting is almost certain. We continue to believe that the Fed will Reduce the scale of rate hikes again in early 2023, with only 25 basis points of rate hikes in February and March.”
Wells Fargo: Fighting inflation still has work to do
The bank believes that the Fed is still concerned about the continued rise in labor costs. Likely to keep the Fed in an anti-inflationary policy mode for some time. We expect the Fed to continue its signal of 50 basis points of rate hikes tomorrow, although the report adds to the Fed’s further slowdown at its first meeting in 2023 The prospect of a 25 basis point rate hike.”
Goldman Sachs: Still maintaining the peak interest rate forecast of 5.00 to 5.25%
Goldman Sachs said that in addition to the Fed raising interest rates by 50 basis points as widely expected, the main event of the December Fed meeting may be to raise the expected peak funds rate in 2023. The peak interest rate of the Fed is expected to rise to the range of 5-5.25%. Beyond that, there will be no major changes at the December Fed meeting.
★Market Response Prospect
The Fed will signal whether it can win the battle against inflation in 2023. Markets now expect the federal funds rate to peak at around 5.0% next year. If the Fed hints that interest rates will be higher than this level, it may lead to a stronger dollar; otherwise, it will be negative for the dollar.
A 50 basis point rate hike wouldn’t come as a big surprise, given that Fed Chairman Jerome Powell acknowledged in his last public appearance that a slower pace of rate hikes makes sense. That could give gold a boost if it hints at a shorter-than-expected rate hike.
★Technical Analysis
The dollar index looks at 103.14
On the daily line, the U.S. dollar index started a downward 5-wave trend from 107.19, and the lower support looked at the 61.8% target at 103.14. The 5-wave is a sub-wave of the downward (A) wave that started from 114.78. The (A) wave is part of the correction ((II)) wave that also started at 114.78.
Spot gold looks at $1841
On the hourly chart, the price of gold started an upward ((3)) wave trend from $1777, and the upper resistance looked at the 61.8% target of $1829 and the 76.4% target of $1841. The ((3)) wave is a sub-wave of the upward III wave that started at $1727. Wave III is part of the upward trend that started at $1616.