US Fed meet outcome today: What will the market look for?

The US Federal Reserve is widely expected to maintain policy rates in the current 5.25-5.50 per cent range when it concludes its two-day monetary policy meeting on Wednesday, December 13. Besides, the US central bank is expected to remain hawkish as inflation remains above its 2 per cent target.

US inflation came on expected lines on Tuesday. The November Consumer Price Index (CPI) rose 3.1 per cent, in line with estimates from economists polled by Reuters.

While inflation is easing, the jobs market remains tight.

According to a Reuters report, “the US job growth accelerated in November while the unemployment rate fell to 3.7 per cent, signs of underlying labour market strength that suggested financial market expectations of an interest rate cut early next year were probably premature.”

Also Read: US Federal Reserve December Meet: See date, timing, and schedule details here

Experts pointed out that while a status quo on interest rates is expected, the market will focus on Fed Chair Jerome Powell’s commentary on growth and inflation.

Sandeep Raina, Executive Vice President-Research at Nuvama Professional Clients Group believes rate hikes are history, however, the commentary made by the fed Governor on inflation, which is still higher than their internal expected level, bond yields and GDP growth are the key things to watch out for today.

Moreover, retail sales, CPI ( ex-food and fuel) and unemployment would be critical data points to be monitored. The current dot plot on inflation is at 2.7 per cent and any change in this would be an important vector for change, said Raina.

According to Deepak Jasani, Head of Retail Research at HDFC Securities, the Fed is not likely to hint that they are done hiking rates.

Jasani said the comments from the Fed about their expectations on the inflation front and labour market will be watched closely to judge the size of potential interest rate cuts and the speed of implementation. Moreover, the dot plot will also be watched for cues on that front.

Also Read: Cooling inflation, resilient jobs market – will Fed hold rates steady?

“The US Fed will be wary of reversing course too soon which may lead to the resurgence of inflation. The US Fed will release its summary of economic projections as it does at every other meeting. It will be interesting to see if the Fed lowers its interest rate and inflation expectations for December 2024. This information will help the market gauge the potential size of interest rate cuts,” Jasani said.

“Whether the Fed officials drop their statement that they believe another interest rate increase could occur under certain scenarios will also be interesting to note,” said Jasani.

The market is expecting the Fed to cut interest rates in the second half of the calendar year 2024. However, the Fed has reiterated several times that its monetary policy will depend on upcoming data. For now, experts believe the Fed will not hike the rate from the current level. However, even rate cuts are not near.

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