A look at the day ahead from Dhara Ranasinghe.
A fortnight ago, Federal Reserve Chief Jerome Powell gave an overview of what to come at the December Fed meeting by suggesting accelerating the reduction in asset purchases. Now is the time for Powell to reveal his whole hand.
With inflation hitting near four-decade highs, the Fed is expected to close its two-day meeting on Wednesday by stepping up its asset purchases reduction from the current monthly rate of $ 15 billion. Some believe that the pace will be doubled.
This would mean that the reduction could possibly end sooner, which would mean that interest rates would start rising sooner than expected.
The spotlight is now on the Fed’s dot plot indicating where policymakers see rates heading.
A minimum of two increases in points for next year seems certain. Anything more than that would be seen as a hawkish surprise and could possibly disrupt the calm in global markets, just before Thursday’s meetings of central banks in the eurozone, Britain, Switzerland and the United States. Turkey.
For the Bank of England at least, the dilemma is getting worse – the money market practically valued a rate hike this week after the Omicron outbreak, but Tuesday’s jobs and inflation data will show the uncomfortable reading for the bank, with November prices printing at a 10-year high of 5.1%.
The Fed’s policy statement and updated economic projections are released at 19:00 GMT, followed by a press conference 30 minutes later. With that on the horizon, the stock markets are virtually flat. European and US equity futures were little moved, while the dollar held firm.
Yields on 10-year US Treasuries stand at 1.43%, well below a recent high of 1.693%. The yield curve continued its flattening trend, with investors betting that an earlier start to Fed tightening will lead to a slowdown in inflation in the long run.
Key developments that should provide more direction to the markets on Wednesday:
– Chinese factories step up but new COVID pain hits retailers
– Under pressure ‘: the Chinese real estate market suffers new headwinds
– Japan admits to overestimating some government economic data for years
– US Congress approved raising the public debt limit to approximately $ 31.4 trillion
– US retail sales and inventory data released later
– Emerging markets: central bank meeting in Croatia
Chart: Inflation, Average Inflation, Average – https://graphics.reuters.com/USA-FED/FRAMEWORK/byvrjjmbkve/chart.png
(Reporting by Dhara Ranasinghe; editing by Sujata Rao)
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