As the Federal Reserve’s Federal Open Market Committee (FOMC) meeting approaches on Wednesday, February 1, the markets are closely watching the decision of Jerome Powell, the 16th chairman of the Federal Reserve.[0] US inflation has cooled down to 6.5% annually, and many market participants are betting that the Fed will pivot towards accommodation this year and slow the pace of rate hikes from 50 to 25 basis points.[1] The CME’s FedWatch Tool is predicting a 99.1% probability that the outcome of next week’s FOMC meeting will be a rate hike of 25-BPS.
Analysts are expecting the Fed to raise rates by 0.25% at the January FOMC meeting, and the target range is estimated to reach 4.50%-4.75%. However, in order to bring inflation back to 2% on a sustained basis, the FOMC will maintain its target range at the terminal rate longer than most market participants currently expect. It is not anticipated that the FOMC will start reducing rates until the beginning of 2024.[2]
The market is closely following the decision of Jerome Powell. A strategist known as “The Carter” recently said that he expects a 37% drop in S&P 500 from the current levels.[3] If that happens, it will create a lot of panic in the market, and there might also be many bankruptcies.[4] He anticipates that the cost of valuable metals, such as Gold and Silver, will go up in this bear market.[4] Should this event take place, Bitcoin and the rest of the cryptocurrency sector may increase in value too; it is, after all, referred to as “digital gold.”[4]
Any hawkish surprises in the interest rate decision or the Fed’s commentary could trigger major volatility on an already jittery Wall Street.[5] However, we believe that in order to bring inflation back to 2% on a sustained basis, the FOMC will maintain its target range at the terminal rate longer than most market participants currently expect. It is anticipated that the statement will maintain the sentiment that “ongoing increases” in the federal funds rate will be necessary.[6] It is expected that the Committee will increase its target range for the federal funds rate by 25 basis points at their respective meetings on February 1, March 22, and May 3.[2]
0. “Economists expect the worst and a sharp reversal in the markets before the Fed meeting” Royals Blue, 30 Jan. 2023, https://www.royalsblue.com/economists-expect-the-worst-and-a-sharp-reversal-in-the-markets-before-the-fed-meeting/
1. “FOMC Meeting 2023 LIVE Updates: Fed likely to raise interest rates by 25bps; 2-day meeting begins on” Zee Business, 30 Jan. 2023, https://www.zeebiz.com/markets/global-markets/live-updates-fomc-meeting-2023-fed-jerome-powell-us-markets-dow-jones-nasdaq-wall-street-dollar-index-219438
2. “January flashlight for the FOMC blackout period” FXStreet, 23 Jan. 2023, https://www.fxstreet.com/analysis/january-flashlight-for-the-fomc-blackout-period-202301231112
3. “Market Strategist Warns of ‘Blood’ on February 1 Ahead of Fed Meeting – Economics Bitcoin News” Bitcoin News, 29 Jan. 2023, https://news.bitcoin.com/market-strategist-warns-of-blood-on-february-1-ahead-of-fed-meeting/
4. “Markets could turn bearish before Fed meeting on 1st Feb” Techstory, 30 Jan. 2023, https://techstory.in/markets-could-turn-bearish-before-fed-meeting-on-1st-feb/
5. “How Aggressive Will The Fed Be This Week? Why Powell’s Comments Are ‘The Fulcrum Issue For The Markets’ By …” Investing.com UK, 30 Jan. 2023, https://uk.investing.com/news/stock-market-news/how-aggressive-will-the-fed-be-this-week-why-powells-comments-are-the-fulcrum-issue-for-the-markets-2897917
6. “BoA on the FOMC, +25bp & guidance of more to come. BoA forecast EUR/USD lower.” ForexLive, 30 Jan. 2023, https://www.forexlive.com/centralbank/boa-on-the-fomc-25bp-guidance-of-more-to-come-boa-forecast-eurusd-lower-20230130/