FOMC minutes release on Wednesday, investors eyeing for cues on next rate hike | The Financial Express

FOMC minutes release on Wednesday, investors eyeing for cues on next rate hike

The equities market’s joy at a lower-than-expected October CPI figure will probably be undone by these minutes.

FOMC minutes release on Wednesday, investors eyeing for cues on next rate hike
Two key developments have taken place since the November 2 rate hike by the Fed.

Investors in the stock market pay close attention to the release of the FOMC Minutes. It gives the market some clues as to what the Federal Open Market Committee (FOMC) members are thinking about the inflationary scenario in the economy. The minutes of the FOMC meeting held on November 1-2 will be made public on Wednesday, November 23.

The Federal Reserve November 2 raised the rates by 75 basis points so as to maintain the federal funds rate in a target range of 3.75 to 4 percent. This was the fourth consecutive rate hike by the US Fed taking the total of rate hikes so far in 2022 to 375 bps. When the FOMC meeting minutes are released, market participants will be looking for cues about the size of the next interest rate increase in December.

Two key developments have taken place since the November 2 rate hike by the Fed. First, was Powell’s post-rate hike commentary, and second, was the US CPI data released on November 10.

Powell signaled a higher terminal rate than what the expectation was and also said that the pace of rate hikes may slow down but will continue till inflation is brought under 2%. And, October inflation numbers showed that the inflation might just have started to cool down.

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The equities market’s joy at a lower-than-expected October CPI figure will probably be undone by these minutes since the Fed has a different perspective and is already pushing back strongly.

Since the publication of that CPI report on November 10, the Fed’s language has been unequivocal that slower rate hikes do not imply a lower terminal rate, and one CPI report that is better than expected will not alter the course of monetary policy. Many FOMC members have made a compelling case since the meeting for the overnight rate to rise above 5% and possibly as high as 5.25% in 2023.

Also Read: US Stocks rally as investors bet on easing of interest rate hikes, inflation by December end

Once Fed Chairman Powell began his post-conference discussion on monetary policy, the rise in stock prices appeared to be only momentary. When it came to tightening restrictions, reality struck and pessimism returned. Powell’s comments were effective enough to keep the markets at bay.

On November 2, the stock market fell even though the rate increase’s magnitude was predicted. The S&P 500 reversed course from around 3,900 and briefly attempted to rebound around 3,800, but ended the session on session lows down 2.5% at roughly 3,760, closing just above its 20-day moving average.

Meanwhile, the entire discussion of a Fed Pivot also appeared to have been abandoned. It appears more likely than not that the equity market surge following the release of the October CPI figure in mid-November should not only stall but reverse if this message of higher rates is accurately conveyed in the FOMC minutes.

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First published on: 22-11-2022 at 12:13 IST