16.12.2022 11:07

A confident balance is still far away: what to expect from the Fed?

Dear Clients and Partners!

A confident balance is still far away: what to expect from the Fed? Today, the Fed should give the markets a few new topics for discussion. Investors' optimism or negativity depends too much on the assessment of the short-term trend, but how exactly the inflation data will affect the tone of Powell's statement is difficult to predict. What happens if the markets misinterpret the policy of the regulator?Two market arguments are commonly used to assess the Fed's rate situation: the contradiction between inflation and recession, and the correlation of inflation with corporate earnings. The regulator has been aggressive for a whole year and now it is logical to count on a bearish forecast for rates in 2023. The market is waiting for a 50 bp increase (futures estimate the probability of such an event at 77%), then the rate begins to decline and by January 2024 should stabilize in the 4.25-4.33% zone.Major speculators continue to be heavily net short the S&P 500 and net short 2-year treasury futures remain at record highs. This situation creates prerequisites for a new wave of growth in the US stock market. Of course, if a strong fundamental signal appears for this.However, the vague, unemotional style of the speech of the current head of the Fed most often only irritates stock market players and does not give a clear answer. Now Powell will try to shift the focus from the pace of rate hikes to their ultimate goal. His task is to intelligibly explain to the market why the Fed sees the final rate above 5% and intends to keep it at this level, at least until the end of 2023.Perhaps the regulator has already got new serious arguments - in this case, the market reaction will be short-term and moderate. If there are no fresh facts, we are waiting for an active panic.Profits to yall!#ForexChief #Fed #forexnews #Powell #worldnews #SP500 #stock

Sincerely yours,
ForexChief Team