Fed is widely expected to slow down the pace of rate hike today, and raise federal funds rate by 50bps to 4.25-4.50%. The main focus is on the new economic projections in particular the dot plots. Questions are where the terminal rate of the current cycle would be, and how long would rate stay there.
Yesterday’s CPI report showed further evidence that inflation is cooling, rather than plateauing, and in a quicker manner than expected. Currently markets are expecting Fed to make two more 25bps rate hikes in Q1. That would eventually bring interest rate to 4.75-5.00% range, keep it below the 5% psychological level.
Here are some previews:
- FOMC Meeting Preview: 50bps Hike Likely, But Will the 2023 Dots Rise above 5%?
- Fed Decision and US Inflation Stats to Decide Dollar’s Fate
- Fed Preview – Tightening Pressure Persists into 2023
Yesterday’s post-CPI reactions in the markets were clearly indecisive. S&P 500 spiked higher to 4100.96 but that pared back much of the gains to close just 0.73% higher at 4019.65. Today’s reactions could be bearish if Fed’s dot plots indicate that interest way will peak above 5%. Break of 3906.54 support will trigger near term bearish reversal in SPX. Nevertheless, another rally through yesterday’s high should push SPX further towards 4325.58 resistance and end the year on a high note.
