Forex Palmas

What to Expect From the Final FOMC Meeting of 2022.

The final Federal Reserve monetary policy meeting of the year is this week, concluding after a two-day meeting on Wednesday the 14th with the statement released at 20:00 GMT.

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A press conference will follow shortly after with Fed Chair Jerome Powell where it’s hoped he will provide a positive insight into the outlook of the American monetary policy for next year.

50 Basis Points Hike Likely.

Economists are widely predicting that inflation has well passed its peak in the United States. This is great news for mortgage owners and borrowers, but there is still work to be done to ensure that numbers come back to target levels as soon as possible, according to the Fed.

Chair Jerome Powell, commented in a speech in late November, that the FOMC had made “substantial progress” in tightening policy and that the meeting in December may be the first opportunity to slow the size of rate rises.

As a result, a smaller increase to the Federal Reserve’s benchmark rate of 50 basis points is generally anticipated to be passed this Wednesday.

FedWatch Tool from the CME Group.

The Producer Price Index for November, which was issued last week, showed an annual growth rate of 7.4%, down from 8.1% in October. Also, if today’s CPI data is anything to go by, then inflation is certainly beginning to yield. It still remains unacceptably high, having fallen from 7.7% in October to 7.1% for November year-on-year, but this will give the Fed reassurance that rate hikes can begin to slow down.

The Fed has raised interest rates by 375 basis points since March this year, including four straight 75 bp increases at their most recent meetings. If the bank does increase rates by 50 basis points again this week, then it will be in the range of 4.25 percent to 4.5 percent, highs not seen since the close of 2007.


The US Economy Is Mostly Still Strong.

Despite the evident and rising danger of recession, the U.S. economy continues to demonstrate extraordinary strengths, notably in the labour market, as seen by the ongoing creation of jobs and stability in the unemployment rate in the most recently published employment data.

At the moment, such economic resilience is showing to be more of a burden than a gift. As with each indication of strength, it has become more difficult to control ongoing, widespread inflation without the Fed hiking interest rates to a point where a recession is unavoidable.

According to the most recent GDP data, the US economy expanded at an annualized pace of 2.9% in the third quarter, which was far more than economists had predicted.

The drag on the economy at this stage is the housing market. Existing home sales are projected to hover around their present levels until Q3 of next year, after being down for nine consecutive months to a 4.4 million annualized rate in October from over 6.5 million at the start of the year.

According to analysts polled by Reuters, housing prices rose up to 40% during the pandemic when people required more room inside their homes, but U.S. home values will continue to fall into 2023. They forecast a 12% decline from peak to trough, which is only about a third as severe as the previous market correction 15 years ago during the global financial crisis.

Recession Risks Remain.

Numerous variables determine if and when the economy enters a recession, but it will always involve growing unemployment and declining consumption.

CEO of JPMorgan Chase & Co, Jamie Dimon told CNBC recently that consumers and businesses are currently doing well, but that this may not persist for much longer due to the combination of a slowing economy and rising prices. He also believes that the Fed will raise the benchmark rate to 5%, but that still may not be enough to bring inflation back into the target range of 2% any time soon.

Powell, in his November speech, spoke of real GDP growth of 5.7% in 2021 being largely attributed to the economy’s ongoing recovery from the pandemic. GDP remained mostly steady for the first three quarters of this year as well, but according to Powell, the Fed has seen indicators that point to only a slight rise in the fourth quarter and probably only a small gain for the year as a result.

Several factors, including the waning effects of reopening and pandemic fiscal support, the global repercussions of Russia’s war against Ukraine, and the Fed’s monetary policy actions, which are impacting economic activity, especially in interest-sensitive industries like housing, could be responsible for this slowdown in expansion. The Fed believes that for a protracted period of time, the growth rate will need to be kept at a lower level.

Keep an eye out for further updates on the Fed’s decisions later on this week!


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