Federal Reserve Rate Decision and Chairman Powell’s Language in Focus
The upcoming Federal Reserve rate decision is widely expected to be a non-event, shifting the focus to Chairman Jerome Powell’s language and the central bank’s dot plot for future policy. Although Tuesday’s U.S. inflation data did little to change expectations for next year’s rate cuts, some investors are optimistic for a Fed pivot. Wall Street hit fresh 2023 highs, and now it’s up to Powell to convince the markets that any conclusion about the Fed’s job being done is premature.
Market pricing, as indicated by the CME FedWatch tool, suggests a 75% chance of a rate cut in May. Goldman Sachs analysts have also revised their forecast, bringing forward the expected first rate cut from Q4 2023 to Q3 2023. All eyes are on Powell as tonight’s events could make or break world stocks, which have already seen over 1% gains this month.
China’s Policy Adjustments and Market Expectations
In Asia, China has announced its intention to implement policy adjustments to support economic recovery in 2024. This news followed an important meeting of the country’s top leaders. However, these signals failed to generate excitement among investors, causing Chinese stocks to decline. Despite this setback, investors are eagerly awaiting the outcome of Powell’s statements, which could have significant implications for global stocks.
Historical Stock Performance and Central Bank Anticipation
December has historically been a positive month for stocks, except for last year when the MSCI world equity index lost 4%, and 2018 when it fell by 7%. In 2018, the Federal Reserve increased interest rates four times. Following the Fed’s decision, the European Central Bank (ECB), Bank of England (BoE), Swiss National Bank, and Norges Bank are next in line. While all these central banks are expected to maintain steady outcomes, there may be some minor adjustments in rates for Norway.
ECB hawk Isabel Schnabel recently stated that put further interest rate hikes off the table due to a “remarkable” decline in inflation. Additionally, the BoE received welcome news as British wage growth slowed, making it more likely that they will maintain their current stance. Investors will need to navigate through Wednesday’s events before obtaining a clearer picture of how global policymakers will react, and Chairman Powell holds the key to these developments.
Key Events and Market Influences
On Wednesday, market participants should keep an eye on key developments that could influence markets, including UK GDP estimates for October, eurozone industrial production data for the same month, and, most importantly, the Federal Reserve’s policy decision.