The US inflation seems to be cooling down. The US CPI data released yesterday showed that annual inflation had slowed down to 7.1% in November from the level of 7.7% seen in October. Now, sock market investors will be keenly watching today’s Fed rate hike decision. More interesting will be the Fed chief Powell’s post-conference commentary that will send cues to the market.

Latest Update: Federal Reserve raises rate by 50 basis points, seven of 19 officials seeing benchmark rates above 5.25% next year

The Federal Open Market Committee (FOMC) of the Federal Reserve is holding a meeting on December 13-14, after which the Fed will announce its decision on a rate hike on December 14. On Wednesday, the Fed will also release its most recent projections for GDP growth, the labour market, and consumer prices.

Also Read: US CPI eases to 7.1%, stock market reacts positively

The FOMC will not only decide the magnitude of the December rate hike but will also reveal projections, heightening the importance of the meeting. Fed Chairman Jerome Powell will hold a press conference at 2:30 p.m. ET, which will be keenly watched by analysts, economists, and investors.

The stock market is expecting a 50bps rate hike by the Fed today, a shift away from the four consecutive 75bps rate hikes in 2022. Till now, Fed has raised rates by 375 bps with seven consecutive rate hikes. If Fed delivers as per market expectations, from near zero rates, the Federal funds rate will touch 4.25% after today’s rate hike of 50 bps.

Also Read: Fed rate hikes putting pressure on corporate earnings with investors expecting a worsening outlook

Earlier in November, Fed Chairman Powell’s message to the market has been unequivocal – the Fed may consider slowing the pace of rate hikes, but the terminal federal funds rate may be significantly higher than what the market expects. What this means is that the market should put the possibility of a Fed Pivot on hold, at least for the time being.

So far, the Fed’s rate hikes this year have had little impact on the economy. The mortgage rates have risen, reducing demand for housing, but the labour market remains robust. Wages are rising, and consumers are still spending. Also, the US GDP growth rate accelerated in the previous quarter. In Powell’s words, “the real impact of rate hikes can be seen with a time lag,” and the stock market will play the waiting game for the time being. Slowing down the pace of rate hikes will eventually slow down the economy but will help avoid a harsh recession.