USDX
101.828

0.05%

XAUUSD
1930.26

0.11%

WTI
79.666

0.21%

EURUSD
1.08738

0.06%

GBPUSD
1.23976

0.05%

USDJPY
129.454

0.27%

USNDAQ100
12135.02

0.26%

Global Markets
News
Columns

Topics Columnists

Trending Topics

Russia-Ukraine Conflict

The war between Russia and Ukraine continues, and it is difficult for the two sides to reach an agreement in negotiations. Western countries have imposed several rounds of sanctions on Russia. The outlook is unpredictable.

Situation in Taiwan Strait

Pelosi's visit to Taiwan has led to an escalation of tensions in the Taiwan Strait. Chinese Foreign Ministry spokesperson Hua Chunying said that the U.S. side and the "Taiwan independence" separatist forces colluded to provoke China, which is the fundamental reason for the tensions in the Taiwan Strait.

The Fed

The Federal Reserve (Fed), or the central bank of the United States, is responsible for regulating the U.S. monetary policy and interest rates. As a provider of liquidity for world trade, the Fed is also known as the world's central bank. Its every move affects the global economy and financial markets.

China-U.S. Relations

Focus on Pelosi's Taiwan Visit ! How will China-U.S. relations develop in the future, win-win cooperation or confrontation?

Top Columnists

FastBull Featured

The latest breaking news and the global financial events.

FastBull

Hi there! Are you ready to get involved into the financial world?

Devin Wang

I have 5 years of experience in financial analysis, especially in aspects of macro developments and medium and long-term trend judgment. My focus is maily on the developments of the Middle East, emerging markets, coal, wheat and other agricultural products.

Winkelmann

7 years of stock market, foreign exchange, precious metal and other trading and analysis experience, based on fundamental, technical support, biased towards the top-down transaction logic, focusing on macro cycle and risk control, multi-purpose supply and demand theoretical prediction price Changes, balances the impact of transactions, chips distribution and market sentiment, and steady.

7x24
Economic Calendar
Quotes

Videos

Trading AcademyTradersDaniel Market Outlook

Latest Update

Follow the Trend? Or Wait?

Crypto Market had a recovery, Bitcoin has up about 39% since Jan, Ethereum has reached the 16k level. Is it good time to follow the trend and buy?

BTC Reaches $21k, Time to Buy? Let’s Do a Statistic Analysis!

Bitcoin recently topped the $21k level. Is it still a good time to buy? Let's do a quick analysis to show you.

FTX’s Customer Recovery Plan

FTX attorney Andy Dietderich claimed FTX has recovered over $5B dollars in cash. Will victims recover their losses soon? Will SBF be responsible for FTX's collapse?

McKinsey’s Report | What Are the Industries Will Adopt Metaverse?

McKinsey reported that metaverse possibly create $5T in value by 2030. Which industry will be impacted the most? How many people would like to take this transition from their real life to metaverse?

Data

Data Warehouse Market Trend Institutional Data Policy Rates Macro

Market Trend

Speculative Sentiment Orders and Positions Asset Correlation

Popular Indicators

Analysis
AI Signals

Trading Signals

Recommended Signals

Pro
Recent Searches
Trending Searches
Quotes
7x24

View All

No data

Login

Sign Up

Membership
Quick Access to 7x24 Real-Time Quotes
Upgrade to Pro

--

  • My Favorites
  • Following
  • My Subscription
  • Profile
  • Orders
  • FastBull Pro
  • Account Settings
  • Sign Out

Scan to download

Faster Financial News and Market Quotes

Download App
Reminder Settings
  • Economic Calendar
  • Market Quotes

Reminders Temporarily Unavailable

I have a redeem code

Rules for using redeem codes:

1.The activated redeem code cannot be used again

2. Your redeem code becomes invalid if it has expired

Redeem
Fastbull Membership privileges
Quick Access to 7x24
Quick Access to More Editor-selected Real-time News
Real-Time Quotes
View more faster market quotes
Upgrade to FastBull Pro
I have read and agreed to the
Pro Policy
Feedback
0 /250
0/4
Contact Information
Submit
Invite Friends

US Federal Reserve preview: trapped between a rock and a hard place

Justin
Inflation and RecessionForex MarketThe FedCentral Bank Policy Trends
Summary:

A 50bp hike is widely expected given high inflation and a tight jobs market, but the market is pricing in a recession, and falling Treasury yields and a weakening dollar are undermining the Fed’s efforts to dampen price pressures. A hawkish Fed message will likely fall on deaf ears unless the data start proving the central bank right.

A step down to a higher peak

A 50bp hike at the 14 December Federal Open Market Committee (FOMC) meeting is the strong call from both financial markets and economists. After implementing 375bp of rate hikes since March, including consecutive 75bp moves at the previous four meetings, Federal Reserve officials are of the view that they’ve made “substantial progress” on tightening policy so it is time to “step down” to lower increments. Nonetheless, Fed Chair Jerome Powell and the team have been at pains to point out that despite smaller individual steps, the “ultimate level of rates will need to be somewhat higher than thought at the time of the September meeting”.

Scenarios for the 14 December FOMC meeting

US Federal Reserve preview: trapped between a rock and a hard place_1

Signalling could fall on deaf ears

In this regard, the Fed will be concerned by the recent steep falls in Treasury yields and the dollar, coupled with a narrowing of credit spreads, which are loosening financial conditions – the exact opposite of what the Fed wants to see as it battles to get inflation lower.
These moves were themselves triggered by a weak core CPI print for October that came in at 0.3% month-on-month versus a 0.5% consensus expectation, while the Fed’s favoured measure of inflation – the core personal consumer expenditure deflator – was even softer, rising just 0.2%. The market reaction seems excessive to us given this is just one month of data, annual core inflation is still running at triple the target, and to hit 2% year-on-year the month-on-month readings need to average 0.17% over time – and we aren’t there yet. The Federal Reserve will need to see several months of core inflation readings of 0.1% or 0.2% to be confident that inflation is on its way back to target and this is likely to be a key plank of its messaging.
With that in mind, we think the Fed is not finished with its rate hikes and its new forecasts will indeed indicate a higher path for the Fed funds rate to 5% with potential slight upward revisions to near-term GDP, and persistently high inflation forecasts used to justify this. Certainly, the consumer sector has been holding up better than many – including ourselves – expected, with strong jobs and income gains supporting spending.

ING's expectation for what the Fed will predict

US Federal Reserve preview: trapped between a rock and a hard place_2
Looking further ahead, several officials such as James Bullard and John Williams have suggested the Fed may not be in a position to cut interest rates until 2024, and we suspect Powell and the forecasts will echo this sentiment. However, we strongly suspect that this is more tied to the Fed trying to get longer-dated Treasury yields higher rather than a conviction call that recession and lower inflation over the medium-term will be avoided.

Inflation makes things tricky

Now, it is important to remember we get November inflation on 13 December – the day before the FOMC meeting – and the outcome will be important for what the Fed has to say. If core CPI comes in at or above the 0.3%MoM consensus forecast, its messaging as outlined above will probably prevail. If inflation is softer and yields tumble further then the Fed may have to be more forceful and perhaps raise the possibility of accelerating a run-down in the size of its balance sheet via reduced reinvestment of proceeds from maturing assets. The central bank will stick with the hawkish messaging until it is confident inflation is beaten.

5% in the first quarter but rate cuts from the third

In terms of our view, we look for a final 50bp hike in February, taking the Fed funds ceiling to 5%. But like the market, we think a recession will dampen price pressures and the composition of the US inflation basket, which is heavily weighted to shelter and vehicles, will facilitate a far faster drop in annual inflation readings than elsewhere. Remember too that the Fed has a dual mandate which includes an employment dynamic. This offers the Fed greater flexibility versus other central banks to respond with stimulus and we believe it will from the third quarter of 2023 onwards.

Market rates have dropped like a stone – time for the Fed to sell bonds?

If the Fed wants to re-tighten financial conditions by enough, it needs to engineer a hawkish hike. Longer dates, in the wake of the recent falls in yields, are trading as if the Fed is done post the December hike. Assuming the Fed is not done, the first quarter of 2023 should sustain a rising rates theme to it. That should force yields back up, commencing a dis-inversion process on a curve that is now heavily inverted. We’ve likely seen the peak in market rates, but that does not prevent market rates from moving higher, at least for as long as the Fed is still hiking and the end-game is not fully clear.
The Fed has not said too much about the circumstances on the money markets. We still have in excess of $2tr going back to the Fed on the reverse repo facility, reflecting an excess of liquidity in the system. This in turn is driven there as a counterpart to the volume of bonds still sitting on the Fed’s balance sheet. The Fed is rolling off some $95tr per month, but there is always the option to do more, or more pertinently to sell bonds back to the market outright. While it may be a tad premature to suggest this, it’s an option should the Fed really want to see longer-dated market rates revert higher.

FX markets: Short-end rates hold the key for the dollar

Dollar price action over the last two months has been very poor. The dollar has tended to sell off sharply on signs of softer price data but has struggled to rally on any positives – such as the November US jobs reports. That price action suggests a market caught long dollars at higher levels after a five-quarter dollar rally. The hope for dollar bulls now is that positioning is much better balanced after an 8% drop in the trade-weighted dollar and a 12% drop in USD/JPY.
Preventing an even sharper dollar sell-off has probably been the view that the Fed will continue to hike into 2023. The terminal rate is still priced not far from 5% and only 50bp of rate cuts are priced in the second half of 2023. As long as the FOMC statement, Dot Plots, and press conference do not generate any more dovish pricing – and that seems unlikely – we doubt the dollar has to sell off much further.
Our baseline view would see EUR/USD holding around the 1.05 area as the Fed validates the current pricing of its trajectory in money markets. A more dovish turn would be a surprise and with seasonals against the dollar in December, EUR/USD could spike above resistance at 1.06 towards the 1.07 area in thin year-end markets.
Our multi-week preference, however, is that the Fed is still going to talk tough, and heading into January the dollar starts to make a comeback – where 4.5%+ deposit rates look increasingly attractive amid a global slowdown.

Source: ING

Risk Warnings and Investment Disclaimers
You understand and acknowledge that there is a high degree of risk involved in trading with strategies. Following any strategies or investment methodologies is the potential for loss. The content on the site is being provided by our contributors and analysts for information purposes only. You alone are solely responsible for determining whether any trading assets, or securities, or signal, or any other product is suitable for you based on your investment objectives and financial situation.

Quick Access to 7x24

Quick Access to More Editor-selected Real-time News

Full Access to Pro Video Channel

FastBull project team is dedicated to create exclusive videos

Real-Time Quotes

View more faster market quotes

More comprehensive macro data and economic indicators

Members have access to entire historical data, guests can only view the last 4 years

Member-only Database

Comprehensive forex, commodity, and equity market data

7x24
Real Time Quotes

Nothing on your watchlist! Go to add

Watchlist
Economic Calendar
  • Economic Calendar
  • Events
  • Holiday
Policy Rates
BANKS ACT (%) PREV (%) CPI (%)
Relevant News
FastBull
English
English
简体中文
繁體中文
العربية
Telegram Instagram Twitter App Store App Store App Store Google Play
Copyright © Fastbull Ltd
Home News Columns AI News Economic Calendar Quotes Videos Data Warehouse Analysis AI Signals Pro User Agreement Privacy Policy About Us

Risk Disclosure

The risk of loss in trading financial assets such as stocks, FX, commodities, futures, bonds, ETFs or crypto can be substantial. You may sustain a total loss of the funds that you deposit with your broker. Therefore, you should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources.

No consideration to invest should be made without thoroughly conduct your own due diligence, or consult with your financial advisors. Our web content might not suit you, since we have not known your financial condition and investment needs. It is possible that our financial information might have latency or contains inaccuracy, so you should be fully responsible for any of your transactions and investment decisions. The company will not be responsible for your capital lost.

Without getting the permission from the website, you are not allow to copy the website graphics, texts, or trade marks. Intellectual property rights in the content or data incorporated into this website belongs to its providers and exchange merchants.