After the November inflation test, the markets are now bracing for an even tougher challenge from the Federal Reserve, which is set to announce its interest rate decision this Wednesday at 2 p.m. ET, followed by Fed Chair Jerome Powell‘s press conference at 2:30 p.m. ET.
Although the hiking cycle has almost certainly concluded with rates expected to stabilize between 5.25%-5.50%, this final meeting of the year is pivotal as investors closely monitor the central bank’s outlook on monetary policy.
End of the Hiking Cycle and Market Expectations: The current consensus suggests the Federal Reserve’s rate-hiking cycle has reached its peak, with expectations for rates to settle in the 5.25%-5.50% range. However, the significance of this meeting extends far beyond the immediate rate decision. Investors are eagerly anticipating insights into the Fed’s perspective on the future of monetary policy.
FOMC’s Economic Projections in Focus: A critical element of the upcoming announcement is the Federal Open Market Committee’s (FOMC) new economic projections. These forecasts, covering inflation, growth, and the trajectory of interest rates through 2024, 2025, 2026 and the long term, will provide valuable indicators of the Fed’s economic outlook. The Fed’s September forecasts placed the Personal Consumption Expenditure (PCE) index at 2.5% in 2024, decreasing to 2.2% in 2025 and reaching the 2% target by 2026. Economic expansion was projected at 1.5% in 2024, followed by 1.8% in the subsequent years.
The Crucial “Dot Plot”: The “dot plot,” a graphical representation of each board member’s interest rate expectations, will be under intense scrutiny. Although not a formal commitment, the dot plot is a vital tool for understanding potential future scenarios and how they align with or diverge from market expectations.
Revisiting September’s Projections vs. Market Reality: The divergence between the Fed’s previous projections and current market pricing is striking. September’s dot plot indicated a median rate of 5.6% by the end of 2023, a figure that has not materialized. For the end of 2024, the plot showed a 50-basis-point reduction to 5.1%, while market pricing now suggests significant cuts, leading to a rate between 4% and 4.25%. If the Fed sticks with the 50 basis points of…
Click Here to Read the Full Original Article at Cryptocurrencies Feed…
