Walid Salah Eldin
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We are ahead of new Interest rate decision in US and it not 100% priced in. Before the silence of the FOMC members, we had seen St. Louis Federal Reserve's President James Bullard saying that US interest rates have to rise further to ensure that inflationary pressures recede. I think is going to vote for 0.50% and he is well known as a hawkish member anyways.
While the FOMC member through 2030 Cristopher Waller said it frankly last Jan 20 before the silence that he backs 0.25% hike this meeting.
The others can be named in between like Fed's Loretta Mester, president of the Federal Reserve Bank of Cleveland who welcomed actions to tame inflation. She said previously that her estimate for interest rates is higher than that of her colleagues and the central bank needs sustained tight policy to defeat inflation.
While Fed's Esther George said that the central bank must restore price stability, "which means returning to 2% inflation rising yearly scale" expecting Fed Fund rate to rise to 5%. It is the same as the median forecast of the members have actually shown.
Another FOMC member who is The Minneapolis Fed’s Neel Kashkari also noted before the silence that he wants to be sure that inflation has stopped rising, before he would support stopping of tightening.
While the Fed chairman indicated just before the committee members' usual two-week silence before the meeting that "smaller interest rate increases are likely to begin in the near future and if progress in tackling inflation is still seen so far, we still have a way to restore price stability."
Powell said that There is no talk among the members about the possibility of lowering interest rates before having evidence of inflation setting back to its 2% yearly inflation target over the medium term.
So, there are no current plans to do to cut rates before the end of 2023, although it was expected that inflation rates would drop, before the middle of 2023, mainly as a result of the decline in demand within the real estate sector, due to the taken tightening steps by the Federal Reserve.
Powell expects economic growth to decline below its usual rates in the medium term in the coming period, after it has already declined significantly in 2022 from 2021, and he also made it clear that the committee expects pressure on the labor market during the coming period as a result of efforts to contain inflation, but he avoided calling it “a recession or fabricating a recession” to disrupt economic activity in order to contain inflation.
Powell stated again, as he did after the last meetings, that "no one knows whether these efforts will lead to a recession or not, just as no one knows to what extent this recession will be, if it is to be.
But the most important now is to contain inflation," and the level or interest rate that we will to reach this goal, not the rate of lifting pace that we will follow in doing this task.
So that the monetary policy will become tighter and tighter enough to contain inflation, as the Fed sees even for having it considerably tight for long time to contain the inflation.
The minutes of last meeting last December have generally highlighted that the committee members maintained their hawkish stance and referred to more hikes to come ahead.
The last FOMC members’ meeting statement showed also willingness to slow down the economic activities to contain inflation, despite its expectation of watching declining in the performance of the labor market, which is still performing very well.
As the median quarterly published forecast of the members highlighted again their expectation of having higher inflation pressure and their readiness to send rates higher to fight this pressure, despite the growth downside pressure and the higher unemployment rate which can result from that fight.
As The FOMC members' average forecast were as follows:
For growth:
0.5% for 2022, 0.5% for 2023, 1.6% for 2024, 1.8% for 2025, from 0.2% in 2022, 1.2% in 2023, 1.7% for 2024 and 1.8% for 2025 the members had expected in last September.
For the unemployment rate:
3.7% for 2022, 4.6% for 2023, 4.6% for 2024, 4.5% for 2025, from 3.8% for 2022, 4.4% for 2023, 4.4% for 2024, and 4.3% for 2025 the members expected last September.
For inflation, the average expectation of the committee members regarding the price index of personal expenditure on consumption was as follows:
5.6% for 2022, 3.1% for 2023, 2.5% for 2024 and 2.1% for 2025, from 5.4% in 2022, 2.8% for 2023, 2.3% for 2024 and 2% for 2025 the members expected in last September.
Excluding food and energy prices from the index, the average expectations of members are as follows:
4.8% for 2022, 3.5% for 2023, 2.5% for 2024 and 2.1% for 2025, from 4.5% for 2022, 3.1% for 2023, 2.3% for 2024 and 2.1% for 2025 the members expected in last September.
For interest rates, the average expectations of the members were as follows:
4.4% for 2022 end, 5.1% for 2023 end, 4.1% for 2024 end, 3.1% for 2025 end, from 4.4% for 2022, 4.6% for 2023, 3.9% for 2024, and 2.9% for 2025 the members expected last September.
But after continued easing of the inflation pressure in the recent months, the market became priced in nearly 80% on tightening by only 0.25%.
From the other side of the Atlantic, we have seen also chorus of tightening promises to contain Inflation in EU too.
As ECB Governing Council member Olli Rehn said recently that rates will have to rise significantly in the next couple of meetings to dampen inflation and also ECB member Pablo Hernandez indicated that they will need to continue hiking the interest rates at a steady pace to anchor the upside risk of inflation expectation.
Have a good day
Kind Regards
Global Market Strategist of FX-Recommends
Walid Salah El Din
While the FOMC member through 2030 Cristopher Waller said it frankly last Jan 20 before the silence that he backs 0.25% hike this meeting.
The others can be named in between like Fed's Loretta Mester, president of the Federal Reserve Bank of Cleveland who welcomed actions to tame inflation. She said previously that her estimate for interest rates is higher than that of her colleagues and the central bank needs sustained tight policy to defeat inflation.
While Fed's Esther George said that the central bank must restore price stability, "which means returning to 2% inflation rising yearly scale" expecting Fed Fund rate to rise to 5%. It is the same as the median forecast of the members have actually shown.
Another FOMC member who is The Minneapolis Fed’s Neel Kashkari also noted before the silence that he wants to be sure that inflation has stopped rising, before he would support stopping of tightening.
While the Fed chairman indicated just before the committee members' usual two-week silence before the meeting that "smaller interest rate increases are likely to begin in the near future and if progress in tackling inflation is still seen so far, we still have a way to restore price stability."
Powell said that There is no talk among the members about the possibility of lowering interest rates before having evidence of inflation setting back to its 2% yearly inflation target over the medium term.
So, there are no current plans to do to cut rates before the end of 2023, although it was expected that inflation rates would drop, before the middle of 2023, mainly as a result of the decline in demand within the real estate sector, due to the taken tightening steps by the Federal Reserve.
Powell expects economic growth to decline below its usual rates in the medium term in the coming period, after it has already declined significantly in 2022 from 2021, and he also made it clear that the committee expects pressure on the labor market during the coming period as a result of efforts to contain inflation, but he avoided calling it “a recession or fabricating a recession” to disrupt economic activity in order to contain inflation.
Powell stated again, as he did after the last meetings, that "no one knows whether these efforts will lead to a recession or not, just as no one knows to what extent this recession will be, if it is to be.
But the most important now is to contain inflation," and the level or interest rate that we will to reach this goal, not the rate of lifting pace that we will follow in doing this task.
So that the monetary policy will become tighter and tighter enough to contain inflation, as the Fed sees even for having it considerably tight for long time to contain the inflation.
The minutes of last meeting last December have generally highlighted that the committee members maintained their hawkish stance and referred to more hikes to come ahead.
The last FOMC members’ meeting statement showed also willingness to slow down the economic activities to contain inflation, despite its expectation of watching declining in the performance of the labor market, which is still performing very well.
As the median quarterly published forecast of the members highlighted again their expectation of having higher inflation pressure and their readiness to send rates higher to fight this pressure, despite the growth downside pressure and the higher unemployment rate which can result from that fight.
As The FOMC members' average forecast were as follows:
For growth:
0.5% for 2022, 0.5% for 2023, 1.6% for 2024, 1.8% for 2025, from 0.2% in 2022, 1.2% in 2023, 1.7% for 2024 and 1.8% for 2025 the members had expected in last September.
For the unemployment rate:
3.7% for 2022, 4.6% for 2023, 4.6% for 2024, 4.5% for 2025, from 3.8% for 2022, 4.4% for 2023, 4.4% for 2024, and 4.3% for 2025 the members expected last September.
For inflation, the average expectation of the committee members regarding the price index of personal expenditure on consumption was as follows:
5.6% for 2022, 3.1% for 2023, 2.5% for 2024 and 2.1% for 2025, from 5.4% in 2022, 2.8% for 2023, 2.3% for 2024 and 2% for 2025 the members expected in last September.
Excluding food and energy prices from the index, the average expectations of members are as follows:
4.8% for 2022, 3.5% for 2023, 2.5% for 2024 and 2.1% for 2025, from 4.5% for 2022, 3.1% for 2023, 2.3% for 2024 and 2.1% for 2025 the members expected in last September.
For interest rates, the average expectations of the members were as follows:
4.4% for 2022 end, 5.1% for 2023 end, 4.1% for 2024 end, 3.1% for 2025 end, from 4.4% for 2022, 4.6% for 2023, 3.9% for 2024, and 2.9% for 2025 the members expected last September.
But after continued easing of the inflation pressure in the recent months, the market became priced in nearly 80% on tightening by only 0.25%.
From the other side of the Atlantic, we have seen also chorus of tightening promises to contain Inflation in EU too.
As ECB Governing Council member Olli Rehn said recently that rates will have to rise significantly in the next couple of meetings to dampen inflation and also ECB member Pablo Hernandez indicated that they will need to continue hiking the interest rates at a steady pace to anchor the upside risk of inflation expectation.
Have a good day
Kind Regards
Global Market Strategist of FX-Recommends
Walid Salah El Din
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