On January 31 – February 1, 2023, the Federal Open Market Committee (FOMC) is meeting to hold its inaugural meeting for the year. The Fed will announce its decision on interest rates on February 1 at 2:00 PM ET. The news of the Fed’s rate hike is closely followed by stock market investors, traders, economists, and analysts all across the world.
The magnitude of the rate hike and the remarks made by Fed Chairman Powell at the conference that follows the event are both topics of interest to stock market participants. After Fed Chair Jerome Powell’s repeated attempts to push back against traders expecting rate reduction later this year, investors will be monitoring for the tone policymakers establish for upcoming meetings.
Equity indices are on their way to close the month of January at a high. The increase in stock prices this month implies that Powell’s warning of “higher-for-longer” interest rates has thus far been disregarded by the market.
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While the markets may have already priced-in lower rate hikes in 2023, it is the Fed Chief Powell’s speech that will send signals to the global markets in the year ahead. Inflation, meanwhile, is still hovering around 6.5%, much above the Fed’s target of 2%.
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Prior to the FED meeting, hedge funds have the largest net short position in US government bonds. The market may be paying close attention to the circumstances that could lead to a pause in rate increases by the central bank. The Fed will reverse course and cut interest rates sooner and more aggressively than money markets forecast this year as signs of a US economic recession emerge, according to HSBC Asset Management.
The US jobs data is scheduled for Friday as well as policy discussions in Europe and the UK on Thursday. The Fed’s main objective is to loosen the labour market.