June 14, 2023 (MLN): The U.S. Federal Reserve will likely maintain the interest rate at 5-5.25% in today’s Federal open market committee (FOMC) rate decision.
The Fed is scheduled to release the rate decision today at 11:00pm PST, and Fed Chair Jerome Powell will hold a press conference at 11:30pm PST.
After the cooler-than-expected U.S. consumer price index (CPI) inflation data that came in at only 4% for the month of May, markets are now fully pricing in a rate pause.
CME FedWatch Tool is currently showing an 89.6% probability of interest rates remaining unchanged.
The CPI inflation data was lower than the previous month of 4.9% and below analysts’ expectations of 4.1%, indicating a moderation of inflationary pressures.
Notably, CPI in the last year, May 2022 stood at a high of 8.6% YoY, showing that the federal reserve with its fast-paced rate hikes and balance sheet reductions has been successful in curbing inflation to some extent.
CPI inflation has fallen from a peak of 9.1% in June 2022 to 4% in May 2023.
However, it still remains way above the country's 2% inflation goal, and Fed will not cut rates anytime soon, at least for another year.
It is pertinent to note that the Fed has hiked interest rates from 0.25% in March 2022 to 5.25%, in ten consecutive hikes.
Policymakers are now faced with a difficult task for upcoming monetary decisions, as the data that came in since the last meeting is mixed.
The economy has continued to generate strong monthly job and wage gains, with the U.S. non-farm payrolls (NFP) adding 339k jobs in the month of May.
NFP, which shows the number of jobs created in the U.S. excluding farm workers, added 149k more jobs (total 339k) than the market analysts' expectations of 190k jobs.
Expected market reaction
Due to the highly efficient nature of financial markets, it has already been pricing in the rate pause for weeks.
This can be seen in the S&P 500 index which has increased by 4.45% in the current month, by 13.38% year-to-date, and by 25.13% from the lows in October 2022.
Similarly, the technology composite index Nasdaq 100 has surged by 4.76% in the current month, by a significant 35.49% year-to-date, and by 43.19% from the lows in October 2022.
Moreover, the top giant companies have recorded massive gains, with companies like Apple (NASDAQ: AAPL) which has made a new all-time high, and Tesla (NASDAQ: TSLA) recording a winning streak of 13 daily green sessions in a row, up by a massive 2.39x year-to-date.
Markets will only react to unexpected rate decision, as the rate pause is almost fully priced in.
Copyright Mettis Link News
Posted on: 2023-06-14T17:04:34+05:00
