The Fed remains open to raising interest rates again and is questioning markets

Have we peaked or not?
But, we have come close to it!

This is the question and the answer that has been running through the minds of traders in the US stock markets since the end of the Federal Reserve meeting and the speech of its Chairman Jerome Powell.

After the Market Committee’s decision to keep interest rates unchanged at 5.25%, as most expectations indicated, the Federal Reserve chairman made clear that most members agreed that interest rate hikes would be appropriate, and no member saw them likely. What this year’s rate cut has done to rein in monetary policy is yet to show its impact, particularly on inflation.

At each upcoming meeting of the Market Committee, interest rates are not pre-determined and are determined on a data-driven basis, giving more relative weight to economic data, particularly inflation-related data, to move markets. Lifting or under-lifting as required has become parallel.
He did not confirm that the Fed would raise rates at its next meeting in July, but instead tried to leave the door open to the possibility of a hike, God willing, and he stopped short of saying that the current interest rate appears to be enough to keep inflation down. 2% per annum, he said after the meeting on May 3. Mark the past and stop uploading the next meeting, which, as we have seen, has already happened.

A decision to keep interest rates unchanged this time around will give members more time to reassess the situation with more data, an economic assessment provided by the panel showed.

That’s what came from more than one of the Fed’s conservatives before the meeting, as vice presidential candidate Philip Jefferson said before members’ enforced silence before the meeting: “If the Fed stops raising, it will give it a better opportunity to look at and analyze more data to determine the extent of the need for inflationary policy.” Hawkish,” Reuters said, agreeing with Patrick Harker, a member of the market. The committee and the president of the Federal Reserve Bank of Philadelphia made it clear two weeks before that meeting that they wanted to support a “hold” on raising interest rates.

Additionally, the central bank reiterated that inflation remains high and remains committed to returning inflation to its target of 2% annually over the medium term.
He added that monetary policy’s target inflation level will not be reached without a decline in economic growth below its average rates and underperformance of the labor market.

Regarding credit conditions, he added that as its conditions become more stringent, the housing sector and companies will reduce borrowing, which may affect economic activity, employment and inflation, but the extent of this impact is still uncertain. .

Following are the average expectations released by the market committee members after their meeting on the fourteenth of this month:

For interest rate:
5.6% by the end of 2023, 4.6% in 2024, 3.4% in 2025, 5.1% in 2023, 4.3% in 2024, and 3.1% in 2025 were expected by members last March.

They also predict the development of:
Members last March expected growth of 1% this year, 1.1% in 2024, and 1.8% in 2025, 0.4% in 2023, 1.2% in 2024, and 1.9% in 2025.

Regarding unemployment rate:
Members expected it to be 4.1% by the end of this year, 4.5% in 2024, 4.5% in 2023, 4.6% in 2024 and 4.6% in 2025.

As for inflation:
The average expectation of the panel members about the price index of private consumption expenditures is as follows:
3.2% by the end of 2023, 2.5% by the end of 2024, 2.1% by the end of 2025, 3.3% by the end of 2023, 2.5% by the end of 2024 and 2.1% by the end of 2025. Last March by members.

Excluding food and energy prices from the index, members’ average expectations are as follows:
3.9% at the end of 2023, 2.6% in 2024, 2.2% in 2025, 3.6% at the end of 2023, 2.6% in 2024, and 2.1% in 2025, as expected by members last March.
In general, members of the committee should make it clear that inflation will still be among their priorities, keeping the central bank’s interest rate an option if needed to control prices.

Members expect an improvement in economic performance this year than expected in March, but then a decline in growth rates in 2024 and 2025 and a tightening of monetary policy resulting in the unemployment rate rising from current levels. To curb inflationary pressures, but their expectation of a rise in the unemployment rate came in lower than members expected last March.

Excluding food and energy prices, their expectations for inflation are still rising from one meeting to another, showing they continue to appreciate the risks of rising inflation, even after a 5% hike in the past 15 months. , inflation is more than twice the central bank targets.

On the other side of the Atlantic, European Central Bank President Christine Lagarde said during a press conference following the European Central Bank’s expected decision to raise the interest rate on deposits in the euro by 25 basis points. 3.50% and the interest rate on refinancing was 4% yesterday. The inflation-defying interest rate has been strongly supported by rising wage levels in the labor market.

The European Central Bank has set an annual target of 2%, with members expecting inflation to be 2.2% in 2025, clearly raising interest rates again at next July’s meeting, which has led to support against major currencies. , should rise again to trade against 1.095.

U.S. stock market indexes fell early after committee members agreed to raise interest rates to an average of 5.6% by the end of the year, leaving the door open for another hike of 25 basis points, or as the Federal Reserve chairman said during his press conference, Fed members’ expectations. He also clarified that he did not like these expectations due to the current situation and the results at the same time. It should look like a commitment to be fulfilled by the central bank.

In general, with more hindsight, market participants felt that the summit of interest rate hikes was imminent, if not already, encouraging risk-taking in U.S. stock markets again.

Futures are currently sitting near the psychological 34500, while the futures of the US stock indices are currently near 4440, and the psychological has risen above 4400. As well as the future higher 100 should reside again. Above 15200, after the start of the US session, profit taking was evident at the time of writing this report.