The US Federal Reserve’s decisions on monetary policy are scheduled to be issued tomorrow, Wednesday, which will be followed by the press conference of the bank’s governor, Jerome Powell, to comment on these decisions. In addition to the US stock market and the cryptocurrency markets, here is a look at how this decision entailed, and how it affects the markets:
First: the economic conditions and their impact on the decisions of the US Federal Reserve
Since the US Federal Reserve meeting last November, many important economic data appeared, which strongly affected the dollar’s movements against currencies and support the continuation of the US Federal Reserve’s interest rate hike, but at a lower pace, led by inflation data.
In this context, we find that the US inflation index slowed to a level of 7.1% at the end of last November, less than market expectations that the index would record about 7.3%. It is also lower than the previous reading, which recorded about 7.7% last October.
On the other hand, the US labor market data witnessed a strong improvement, as the employment change index in the agricultural sector increased by 263 thousand jobs in November, better than market expectations, which indicated an increase in the index by about 200 thousand jobs. Meanwhile, the US unemployment rate stabilized at 3.7%. Wages also recorded a growth of 0.6% during the same period.
Hence, it can be said that the slowdown in the pace of inflation during the last period may push the US Federal Reserve to slow down the pace of interest rate hikes during the coming period, especially since the fruits of tightening monetary policy are beginning to appear, which will make the US Federal Reserve more careful when making upcoming monetary policy decisions.
Why did the dollar fall after US inflation data?
Second: Statements by US Federal Reserve members about interest:
The tone of the statements of many members of the US Federal Reserve during the last period tended towards the continuation of raising interest rates, but at a slower pace, especially with the slowdown in the pace of inflation during the last period, and on top of these statements, the statements of the US Federal Reserve Governor Jerome Powell, in which he spoke about that it would be logical for the US Federal Reserve to start By easing the pace of interest rate hikes, and that the time for moderation in raising interest rates may come as soon as possible, perhaps in December.
Jerome Powell continued that the US Fed has made significant progress towards sufficiently restrictive policy, and it is likely that the US Fed will need to keep policy at the restrictive level for some time, especially since the US Federal Reserve has a long history of warning us to loosen too much prematurely.
A strong surprise for the currency markets… The US Federal Reserve sets a date for slowing interest rate hikes
Third: Major banks’ expectations of the US Federal Reserve’s decisions:
The expectations of most major banks indicate that the US Federal Reserve will raise interest rates by about 50 basis points, especially after the release of US inflation data, as analysts at Rabobank presented their expectations about the upcoming US Federal Reserve interest rate decisions, anticipating that the US Federal Reserve will slow down the pace of interest rate hikes at its next meeting. The US Federal Reserve is likely to raise interest rates by 50 basis points.
Also, a group of analysts at Commerzbank explained that the US Federal Reserve may slow down the rate hike at its meeting this week; Following the continued decline in inflationary pressures, as the US Federal Reserve is likely to raise interest rates by 50 basis points, and the bank’s economists confirmed that the US Federal Reserve may decide to reduce the rate of interest rate hikes again early next year, the US Federal Reserve is likely to cut interest rates by 25 basis points. Only in February and March.
Commerzbank is likely to raise interest rates by 50 basis points
Rabobank’s expectations for the US Federal Reserve’s 2023 interest rate decisions
Fourth: The expected scenario for the upcoming US Federal Reserve decisions:
In light of what was mentioned above, it is first scenario, It is represented by the US Federal Reserve raising the interest rate by 0.50% at this meeting, and that the interest statement and the press conference of the bank governor may talk about concerns about the slowdown in the economy and the continued slowdown in inflation, and this in turn calls for continuing to slow the rate of interest rate hikes during the coming period, and this scenario is It is currently likely, and if it occurs, it may clearly have a negative impact on the dollar, but on the other hand, it supports the rise of gold, various digital currencies, and the US stock market.
while second scenario, It is that the US Federal Reserve will raise interest rates by about 75 basis points, and that it will continue to continue the tightening monetary policy for a period of time until it curbs high inflation, and this scenario is currently excluded in light of recent economic data, on top of which are inflation data, and this scenario may provide strong support for the dollar index and recover towards The level of 105 points again, and that will reflect negatively on gold, digital currencies, and the US stock market.