FOMC rate decision

On Wall Street in the week ahead, investors’ major focus will be on the US Federal Reserve’s last monetary policy meeting of 2023.

The prevailing narrative suggests that inflation is moderating and is on a trajectory to reach the Federal Reserve's 2% annual target in the medium term. However, the Fed remains cautious and awaits additional data to confirm this outlook. The Fed has indicated that interest rates could rise again if inflation does not show a consistent downward trend.
Contrarily, in recent weeks, the market sentiment has been increasingly leaning towards the belief that inflation is under control, and there will be no more interest rate hikes. While this aligns somewhat with the Fed's perspective, Fed officials still express concerns that inflation may not consistently decrease from its current levels.

In addition to inflation concerns, the economic growth outlook is a crucial factor. Although the job market has been strong, job gains have slowed, raising the possibility of further weakening in 2024. There are indications, such as the yield curve signaling a recession and a slight increase in unemployment, that a recession might be looming in 2024.
While a recession could help curb inflation, it also poses risks to the Fed's goal of maintaining full employment. If the economic downturn is more severe than a typical soft landing, a rare occurrence historically, the Fed might be inclined to cut rates to support the economy. Although the Fed currently emphasizes maintaining high rates to manage inflation, a severe recession could lead to a faster-than-planned rate cut.
In summary, the Fed is expected to gradually lower interest rates in 2024, not in a rapid or dramatic manner. Unexpectedly high inflation or an unforeseen severe recession could alter this outlook, potentially prompting the Fed to adjust its rate-cutting pace.

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Core inflation rate MoM, PPI, Fed interest rate decision this week…

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